CMA Intermediate · Management Accounting · Marginal Costing (Management Accounting)
Kaveri Textiles has opening stock of 1,000 units and closing stock of 3,000 units. Fixed manufacturing overhead is ₹10 per unit under absorption costing (based on normal capacity, with no under or over absorption). Compared with marginal costing, the profit under absorption costing will be:
Absorption costing profit is higher by ₹20,000. Stock rose by 2,000 units, and each unit carries ₹10 of fixed overhead into closing stock rather than charging it to the period, as marginal costing does.
- A₹20,000 higherCorrect
- B₹30,000 higher
- C₹20,000 lower
- D₹10,000 higher
Explanation
Stock increases by 3,000 - 1,000 = 2,000 units. Fixed overhead carried forward in stock under absorption costing rises by 2,000 x 10 = ₹20,000, so absorption profit is higher by ₹20,000. Using closing stock alone (₹30,000) ignores fixed overhead released from opening stock.
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