ACCA Applied Knowledge · Management Accounting · Absorption and marginal costing
Opening inventory was 500 units and closing inventory was 1,800 units. Under marginal costing profit was $84,000. Fixed production overhead was absorbed at $8 per unit under absorption costing, with the rate unchanged between opening and closing inventory. What was the absorption costing profit?
Absorption costing profit is $94,400. Inventory rose by 1,300 units (1,800 less 500), so 1,300 x $8 = $10,400 of fixed overhead is carried forward under absorption costing. Adding this to the marginal costing profit of $84,000 gives $94,400.
- A$94,400Correct
- B$73,600
- C$98,400
- D$69,600
Explanation
Inventory increased by 1,800 - 500 = 1,300 units. Fixed overhead deferred in inventory = 1,300 x $8 = $10,400. Absorption profit = $84,000 + $10,400 = $94,400. Option B subtracts instead of adding. Option C uses closing inventory only (1,800 x $8 = $14,400 gives $98,400).
Did you get it right without looking?
One question tells you little. A timed set on Absorption and marginal costing shows your real accuracy, how long you take and where you lose marks.
More Absorption and marginal costing questions
- Brindle Co absorbs production overheads on a machine hour basis. Budgeted overheads were $450,000 for 90,000 machine hours. Actual overheads…
- Which one of the following would cause overheads to be under-absorbed in a period?
- Harlow Ltd budgets fixed production overheads of $240,000 and 30,000 direct labour hours for the period. Actual direct labour hours worked w…
- Delta Ltd produced 10,000 units and sold 8,000 units in a period. Fixed production overhead was $50,000 for the period, budgeted output was …
- Which statement correctly explains why absorption costing and marginal costing profits differ when production and sales volumes differ?
- 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 …