Absorption And Marginal Costing PDF

## Absorption and Marginal Costing **1** A company manufactures and sells a single product. For this month the budgeted fixed production overheads are $48,000, budgeted production is 12,000 units and budgeted sales are 11,720 units. The company currently uses absorption costing. If the company us...

## Absorption and Marginal Costing **1** A company manufactures and sells a single product. For this month the budgeted fixed production overheads are $48,000, budgeted production is 12,000 units and budgeted sales are 11,720 units. The company currently uses absorption costing. If the company used marginal costing principles instead of absorption costing for this month, what would be the effect on the budgeted profit? * A. $1,120 higher * B. $1,120 lower * C. $3,920 higher * D. $3,920 lower **2** A company uses an absorption costing system. It has a variable cost of $5 per unit and absorbs fixed production overhead at $3 per unit. In a period when 1,800 units of product were sold and 2,000 units were produced, it recorded an operating profit of $3,600. What would its operating profit have been if it had used a marginal costing system? * A. $2,600 * B. $3,000 * C. $4,200 * D. $4,600 **3** The following budgeted information relates to a manufacturing company for the next period: | Units | $ | |---|---| | Production 14,000 | Fixed production costs 60,000 | | Sales 12,500 |Fixed selling costs 12,000 | The normal level of activity is 15,000 units per period. Using absorption costing the profit for the next period has been calculated as $36,000. What is the profit for the next period using marginal costing? (Answer in $) **4** A company manufactures and sells a single product. In two consecutive months the following levels of production and sales (in units) occurred: | | Month 1 | Month 2 | |:---|:---|:---| | Sales | 2,600 | 3,400 | | Production | 2,700 | 3,200 | Profits or losses have been calculated for each month using both absorption and marginal costing principles. Which of the following combinations of profit/(loss) for the two months is consistent with the above data? | Absorption costing | Marginal costing | |:---|:---| | Month 1 | Month 2 | Month 1 | Month 2 | | $ | $ | $ | $ | | A. 200| 3,400 | (400)| 2,200 | | B. (400) | 3,400 | 200 | 2,200 | | C. 200 | 2,200 | 200 | 3,400 | | D. (400) | 2,200 | (400) | 3,400 | **5** Last month a manufacturing company reported a profit of $2,000, calculated using absorption costing principles. If marginal costing principles had been used, a loss of $3,000 would have been reported. The company's standard fixed production overhead cost is $2 per unit. Sales last month were 10,000 units. What was last month's production (in units)? * A. 7,500 * B. 9,500 * C. 10,500 * D. 12,500 **6** A company uses absorption costing to value inventory. Its fixed production overhead absorption rate is $12 per labour hour and each unit of production should take four labour hours. In a recent period when there was no opening inventory of finished goods, 20,000 units were produced using 100,000 labour hours. 18,000 units were sold and the actual profit was $464,000. What profit would have been reported under a marginal costing system? (Answer in $) **7** A company has budgeted the following unit costs and revenue of a product: | |$| |---|---| | Sales price|$50| | Variable production cost|$18| | Fixed production cost |$10| In the most recent period, 2,000 units were produced and 1,000 units were sold. Actual sales price, variable production cost per unit and total fixed production costs were all as budgeted. Fixed production costs were over absorbed by $4,000. There was no opening inventory for the period. What would be the reduction in profit for the period if the company had used marginal costing rather than absorption costing? (Answer in $) **8** The following data is available on the production and sales for the first three years of a company's new product: | | Year 1 | Year 2 | Year 3 | |:---|:---|:---|:---| | Production units | 5,000 | 6,000 | 4,000 | | Sales units | 4,000 | 6,000 | 5,000 | Variable costs per unit, selling price and total fixed costs per year were constant over the three-year period. The company is considering the use of either marginal or absorption costing. Which of the following statements is/are true? 1. Absorption costing will show a lower profit than marginal costing in Year 1 2. Marginal costing will show a lower closing inventory valuation than absorption costing in Year 2 3. Total profit over the three-year period will be the same under both methods * A. 1 only * B. 2 only * C. 3 only * D. 2 and 3 **9** AJO Co uses marginal costing and the following information relates to Product A: * Selling price per unit $250 * Direct material cost per unit $140 * Direct labour per unit $40 * Other direct expenses per unit $10 * Variable overheads per unit $10 In September 20X2 4,000 units of Product A were sold. What was the total contribution earned from sales of Product A in September 20X2? * A. $200,000 * B. $240,000 * C. $280,000 * D. Cannot be calculated from information given **10** The following information relates to Product W: | | $ per unit | |:---|:---| | Direct materials | 18 | | Direct labour | 22 | | Direct expenses | 4 | | Variable production overheads | 7 | | Fixed production overheads | 12 | What is the marginal cost of a unit of Product W? * A. $40 * B. $44 * C. $51 * D. $63 **11** Identify whether the following advantages and disadvantages are relevant to absorption costing or marginal costing: | Absorption costing | Marginal costing | |:---|:---| | It is easy to use | ✓ | | It is useful for decision making | | | It values inventory in line with International Accounting Standards | ✓ | | It assists in controlling costs | ✓ | **12** The following budgeted information relates to a manufacturing company for next period: | Units | $ | |:---|:---| | Production 14,000 | Fixed production costs 63,000 | | Sales 12,000 | Fixed selling costs 12,000 | The normal level of activity is 14,000 units per period. Using absorption costing the profit for next period has been calculated as $36,000. What would be the profit for next period using marginal costing? (Answer in $) **13** A company manufactures and sells a single product. In two consecutive months the following levels of production and sales (in units) occurred: | | Month 1 | Month 2 | |:---|:---|:---| | Sales | 3,800 | 4,400 | | Production | 3,900 | 4,200 | The opening inventory for Month 1 was 400 units. Profits or losses have been calculated for each month using both absorption and marginal costing principles. Which of the following combination of profits and losses for the two months is consistent with the above data? | Absorption costing profit/(loss) | Marginal costing profit/(loss) | |:---|:---| | Month 1 | Month 2 | Month 1 | Month 2 | | $ | $ | $ | $ | | A. 200 | 4,400 | (400) | 3,200 | | B. (400) | 4,400 | 200 | 3,200 | | C. 200 | 3,200 | (400) | 4,400 | | D. (400) | 3,200 | 200 | 4,400 |