Question 1

A telecommunications equipment manufacturer reported a profit of $50,000 using marginal costing.

During the period, opening inventory was 500 units and closing inventory was 700 units. The fixed production overhead absorption rate is $15 per unit.

Calculate the profit that would be reported if the company used absorption costing.

(Enter the numeric value only, without commas or currency symbols)

Accepted Answer

Use the reconciliation formula: Absorption Profit = Marginal Profit + (Change in Inventory units * Fixed OAR).

Question 2

What mistakes do candidates make on this ACCA question?

Accepted Answer

Subtracting the $3,000 instead of adding it (resulting in $47,000). Remember: if inventory rises, absorption profit is higher.

How to approach this question

Full Answer

Common mistakes

Practice the full ACCA MA — Management Accounting Practice Exam 5

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