CMA Intermediate · Cost Accounting · Marginal Costing
Ganga Tools Ltd produced 12,000 units and sold 10,000 units in a month. Fixed factory overhead was Rs 2,40,000, absorbed on production. There was no opening stock. By how much will profit under absorption costing exceed profit under marginal costing?
Absorption costing profit is higher by Rs 40,000. The fixed overhead rate is Rs 20 per unit on 12,000 units produced, and the 2,000 units of closing stock carry Rs 40,000 of fixed overhead forward, whereas marginal costing writes it all off.
- ARs 20,000
- BRs 40,000Correct
- CRs 48,000
- DRs 2,40,000
Explanation
Fixed overhead per unit = 2,40,000 / 12,000 = Rs 20. Closing stock = 2,000 units, so fixed overhead carried forward = 2,000 x 20 = Rs 40,000. Absorption profit is higher by this amount. Rs 48,000 would wrongly use sales units based rate of 24.
Did you get it right without looking?
One question tells you little. A timed set on Marginal Costing shows your real accuracy, how long you take and where you lose marks.
More Marginal Costing questions
- For Kaveri Foods, sales are Rs 10,00,000, the P/V ratio is 35% and fixed cost is Rs 2,50,000. What is the total variable cost?
- Verma Ltd buys a component at Rs 45 per unit from outside. Making it in-house needs 10,000 units a year at variable cost of Rs 38 per unit, …
- Which statement about contribution in marginal costing is correct?
- Narmada Plastics has a P/V ratio of 40% and a margin of safety of ₹3,00,000, which is 25% of actual sales. What is its profit?
- Yamuna Appliances had opening stock of 3,000 units and closing stock of 1,000 units for the year. Fixed overhead absorption rate was Rs 15 p…
- Gupta Industries makes components X and Y using the same machine, which is the limiting factor with 6,000 hours available. X: selling price …