Absorption Costing : Management Accounting MCQ Practice Questions & Answers (English) - ObjectiveMcq

Absorption Costing in Management Accounting : Practice MCQ Questions & Answers with Explanations

2 practice sets · Page 1 of 1

Management AccountingMediumMarginal CostingAbsorption Costing

Last month the opening inventory was 6,000 units and the closing inventory was 4,000 units. Using absorption costing, this closing inventory was valued at $33,000. Using marginal costing last month's profit was$ 50,000 and using absorption costing it was $41,000.

What was the variable production cost per unit last month?

$6.00

$4.50

$8.25

$3.75

$5.50

View Answer

Correct Answer: D — $3.75

Explanation:

Correct Answer: D

Explanation:

Step 1 — Inventory value per unit (absorption costing):

33,000 / 4,000 = $8.25 per unit

This includes both variable and fixed costs.

Step 2 — Difference in profit between marginal and absorption costing:

Marginal costing profit - Absorption costing profit = $50,000 -$ 41,000 = $9,000

This difference arises because inventory decreased by 2,000 units (6,000 - 4,000), meaning more fixed cost was released under marginal costing.

Step 3 — Fixed cost per unit:

$9,000 / 2,000 units =$ 4.50 per unit

Step 4 — Variable cost per unit:

$8.25 -$ 4.50 = $3.75 per unit

Management AccountingEasyMarginal CostingAbsorption Costing

A company using marginal costing in a period where production exactly equals sales will report a profit that is:

Higher than the profit calculated under absorption costing

Lower than the profit calculated under absorption costing

Equal to the profit calculated under absorption costing

Impossible to compare without knowing the fixed cost absorption rate

Equal only when overheads are zero

View Answer

Correct Answer: C — Equal to the profit calculated under absorption costing

Explanation:

Correct Answer: C

Explanation:

When production equals sales, there is no change in inventory levels (opening inventory equals closing inventory). The difference between marginal costing profit and absorption costing profit arises solely from the fixed overheads carried in inventory. Since inventory levels do not change, the fixed overhead expensed under marginal costing equals the fixed overhead absorbed under absorption costing. Therefore, both methods produce the same profit figure.