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Dear John,
I do not understand this exercise:
The overhead absorption rate for product T is 4$ per machine hour. Each unit of T requires 3 machine hours. Inventories of product T last period were:
Open. Inv. 2400
Clos. Inv. 2700Compared with the marginal costing profit for the period, the absorption costing profit for product T will be which of the following?
A. 1200 $ higher
B. 3600 $ higher
C. 1200 $ lower
D. 3600 $ lowerThank you
My answer to your other question should enable you to answer this.
The overheads per unit are 3 x $4 = $12.
The inventory increases by 300 units.
Therefore absorption costing will result in a higher profit, and it will be higher by 300 x $12 = $3,600.
Again, you must watch the free lectures – I cannot type out all the lectures here 🙂
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