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Pilot Paper Question

Forums › ACCA Forums › ACCA MA Management Accounting Forums › Pilot Paper Question

  • This topic has 3 replies, 3 voices, and was last updated 11 years ago by josy87.
Viewing 4 posts - 1 through 4 (of 4 total)
  • Author
    Posts
  • March 26, 2014 at 4:56 pm #163212
    mansoor
    Participant
    • Topics: 424
    • Replies: 542
    • ☆☆☆☆

    Hi.

    I need to know how to solve this problem as I have no idea!!!!

    please explain a bit of detail.

    regards
    ———————————————————————————-
    A business reported an absorption costing profit of $45,000 last period. Its inventory
    values for the period were as follows:
    $
    Opening inventory 28,000
    Closing inventory 36,400
    If the business had used marginal costing, the inventory values would have been as
    follows:
    $
    Opening inventory 16,000
    Closing inventory 20,800

    What would have been the reported profit using marginal costing?
    A $41,400
    B $48,600
    C $57,000
    D $60,600

    April 2, 2014 at 11:37 pm #164084
    Jack
    Member
    • Topics: 1
    • Replies: 2
    • ☆

    Our inventory has increased:

    Absorption Costing: Inventory increased by $8400

    Marginal Costing: Inventory increased by $4800

    Difference: $3600

    This $3600, is the fixed overhead that has been absorbed into the inventory under Absorption Costing. This will also be the difference in profits between the two costing methods.

    When we use absorption costing, some of the fixed costs for the period are held within the inventory that has been created which reduces the cost of sales and gives us a higher profit.

    Absorption Costing Profit is 45000 – 3600 = $41,400 (A)

    Increased inventory – > absorption costing profits > marginal costing profits
    Decreased Inventory -> marginal costing profits > absorption costing profits

    April 2, 2014 at 11:50 pm #164085
    mansoor
    Participant
    • Topics: 424
    • Replies: 542
    • ☆☆☆☆

    thank you jack.

    this was great help.

    but i already tookmy paper and such a question did not come. lucky i guess.

    but this was bugging me and u have solved my problem. am sure it will help me in ma2 paper.

    regards

    May 2, 2014 at 12:49 am #167063
    josy87
    Member
    • Topics: 173
    • Replies: 215
    • ☆☆☆

    got it!!!!. Thanks you mansoor for posting and jack for solving.

  • Author
    Posts
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