ExpertMedium2 marksShort Answer
ACCA · Question 19 · Cost Accounting Techniques
A bespoke furniture maker reports a profit of $50,000 using marginal costing. During the period, opening inventory was 1,000 units and closing inventory was 1,500 units. The fixed production overhead absorption rate is $10 per unit.
Calculate the profit that would be reported using absorption costing. (Enter numbers only)
A bespoke furniture maker reports a profit of $50,000 using marginal costing. During the period, opening inventory was 1,000 units and closing inventory was 1,500 units. The fixed production overhead absorption rate is $10 per unit.
Calculate the profit that would be reported using absorption costing. (Enter numbers only)
How to approach this question
1. Determine the change in inventory (Closing - Opening). 2. Multiply the change by the fixed OAR. 3. If inventory increased, add this value to marginal profit to get absorption profit.
Full Answer
Change in inventory = 1,500 closing - 1,000 opening = 500 units increase.
Difference in profit = Increase in inventory × Fixed OAR = 500 units × $10 = $5,000.
Because inventory increased, absorption costing defers more fixed costs into inventory, making its profit higher than marginal costing.
Absorption Profit = $50,000 + $5,000 = $55,000.
Common mistakes
Subtracting the $5,000 instead of adding it, resulting in $45,000.
Practice the full ACCA MA — Management Accounting Practice Exam 4
38 questions · hints · full answers · grading
More questions from this exam
Q01A global environmental NGO is planning its resource allocation for the next five years to combat ...EasyQ02A fintech startup is analyzing data to determine the viability of launching a new micro-lending a...EasyQ03A public water utility incurs a base maintenance cost of $10,000 per month for up to 5,000 gallon...MediumQ04An agricultural cooperative produces organic fertilizer. Which of the following costs would be cl...MediumQ05A cross-border logistics company uses an additive time series model to forecast shipping volumes....Medium