ACCA Applied Knowledge · Management Accounting · Alternative cost accounting principles
Zeta Co produced 12,000 units and sold 13,500 units in a period. Fixed production overhead is budgeted at $96,000 for a normal output of 12,000 units, and absorption is based on units. Marginal costing profit was $180,000. What was the absorption costing profit?
The absorption costing profit is $168,000. Inventory decreased by 1,500 units, and at $8 per unit of fixed overhead, $12,000 of previously deferred overhead is charged against profit, so absorption profit falls below the marginal costing profit of $180,000.
- A$168,000Correct
- B$192,000
- C$180,000
- D$84,000
Explanation
Absorption rate = $96,000 / 12,000 = $8 per unit. Inventory fell by 1,500 units, so $12,000 of overhead from opening inventory was released to cost of sales. Absorption profit = $180,000 - $12,000 = $168,000. The $192,000 option adds the difference instead of subtracting it.
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