ACCA Applied Knowledge · Management Accounting · Alternative cost accounting principles
In a period, absorption costing profit was $15,000 lower than marginal costing profit. The fixed production overhead absorption rate was $5 per unit and opening inventory was 4,000 units. Assuming no other differences, what was closing inventory?
Closing inventory was 1,000 units. Absorption profit being $15,000 lower shows inventory decreased by $15,000 divided by $5, which is 3,000 units, so closing inventory is the opening 4,000 units less 3,000 units.
- A1,000 unitsCorrect
- B3,000 units
- C7,000 units
- D19,000 units
Explanation
Absorption profit lower means inventory fell. The change is $15,000 / $5 = 3,000 units. Closing inventory = 4,000 - 3,000 = 1,000 units. The 7,000 option wrongly treats the change as an increase.
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