ACCA Applied Knowledge · Management Accounting · Absorption and marginal costing
Pell Co had absorption costing profit of $48,000 and marginal costing profit of $54,000 for a period. Fixed production overhead is absorbed at $4 per unit and the opening inventory was 5,000 units. Production was 20,000 units. What were the sales units?
Sales were 21,500 units. Absorption profit is $6,000 below marginal profit, so inventory fell by 1,500 units at $4 each. Closing inventory is therefore 3,500 units, and sales equal 5,000 opening plus 20,000 produced less 3,500 closing.
- A21,500Correct
- B18,500
- C23,500
- D16,500
Explanation
Absorption profit is $6,000 lower, so inventory fell by 6,000/4 = 1,500 units. Closing inventory = 5,000 - 1,500 = 3,500. Sales = opening 5,000 + production 20,000 - closing 3,500 = 21,500. 18,500 wrongly assumes inventory rose.
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