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ACCA Applied Knowledge · Management Accounting · Absorption and marginal costing

Kestrel Co sold 6,000 units in a period at $25 per unit. Variable costs were $15 per unit and fixed costs were $42,000. What was the profit under marginal costing?

Profit is $18,000. Contribution is $10 per unit (25 less 15), so 6,000 units give $60,000 total contribution. Deducting fixed costs of $42,000 leaves $18,000. Stating $60,000 would ignore fixed costs, which are charged in full against contribution in the period.

  1. A$18,000Correct
  2. B$60,000
  3. C$48,000
  4. D$102,000

Explanation

Total contribution = 6,000 x (25 - 15) = $60,000. Profit = 60,000 - 42,000 = $18,000. $60,000 forgets to deduct fixed costs; $48,000 uses a wrong deduction of 12,000.

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