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

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

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.