Section A

AppDev Co, a tech startup, produced 5,000 software licenses and sold 4,500 in its first month. Fixed production overheads were $20,000. The company reported a profit of $50,000 using marginal costing. What would the profit be if the company used absorption costing?

Fixed OAR = $20,000 / 5,000 units = $4 per unit. Inventory increased by 500 units (5,000 produced - 4,500 sold). Under absorption costing, fixed overheads attached to closing inventory are carried forward. Difference in profit = 500 units * $4 = $2,000. Since inventory increased, absorption profit is higher: $50,000 + $2,000 = $52,000.