Skip to content

CMA Intermediate · Management Accounting · Marginal Costing (Management Accounting)

A firm's marginal costing profit is Rs 3,00,000 and absorption costing profit is Rs 3,40,000, with a fixed overhead rate of Rs 20 per unit and no change in rate between periods. Which statement about stock units is correct?

Stock increased by 2,000 units. Absorption profit is Rs 40,000 higher than marginal profit, which arises only when stock rises, and dividing Rs 40,000 by the fixed overhead rate of Rs 20 per unit gives 2,000 units.

  1. AStock increased by 2,000 unitsCorrect
  2. BStock decreased by 2,000 units
  3. CStock increased by 17,000 units
  4. DStock decreased by 17,000 units

Explanation

Absorption profit exceeds marginal profit by Rs 40,000, which happens only when stock increases. Change in units = 40,000 / 20 = 2,000 units. A decrease would make absorption profit lower than marginal profit.

Did you get it right without looking?

One question tells you little. A timed set on Marginal Costing (Management Accounting) shows your real accuracy, how long you take and where you lose marks.

Practise Marginal Costing (Management Accounting)Free diagnostic mock

More Marginal Costing (Management Accounting) questions