CMA Intermediate · Cost Accounting · Marginal Costing
Yamuna Appliances had opening stock of 3,000 units and closing stock of 1,000 units for the year. Fixed overhead absorption rate was Rs 15 per unit in both years. Marginal costing profit for the year was Rs 4,50,000. What is the profit under absorption costing?
Absorption costing profit is Rs 4,20,000. Stock declined by 2,000 units, so Rs 30,000 of fixed overhead (2,000 x Rs 15) brought forward in opening stock was charged in excess of that deferred, making absorption profit lower than marginal profit of Rs 4,50,000.
- ARs 4,80,000
- BRs 4,20,000Correct
- CRs 4,65,000
- DRs 5,10,000
Explanation
Stock fell by 2,000 units, so more fixed overhead was released from opening stock than was deferred in closing stock. Difference = 2,000 x 15 = Rs 30,000. Absorption profit = 4,50,000 - 30,000 = Rs 4,20,000. Rs 4,80,000 adds instead of subtracts.
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