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A Co. uses standard absorption costing. Its fixed OH absorption rate is $ 8 per machine hour and each unit of production should take 3 machine hours.
Last year there was an opening inventory of finished goods of 4,000 units, they produced 30,000 units and sold 25,000 units.
The actual profit last year was $ 526,000.
I got answer $ 486,000 but it is not part of 4 options.
Please help me to find where I am wrong…..
You forgot to mention the selling price per unit.
Can you give the whole question please
many thanks
Shaun.I am guessing that maybe the question was what was the profit using marginal costing?
If it was then the correct answer is $406,000.
(because the inventory increased by 5000 units and each unit has fixed overheads of $24 (8 x 3). So the marginal profit is lower by 5,000 units x $24.)HI John
Again Thanks!
I got 5,000 units as difference in inventory but rather than multiplying by $24 I was multiplying by $8 and that’s reason i didn’t get correct answer.
I think I am making silly mistakes.
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