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Dear Sir,
Could you please help me to understand why in this example below we do not take into account opening inventory.
Fixed overhead 5
Last period, 8,000 units were produced and 8,500 units were sold. The opening inventory was 3,000 units
and profits reported using marginal costing were $60,000. The profits reported using an absorption costing system would be:A $47,500
B $57,500
C $59,500
D $62,500I based my calculation on the closing inventory 2,500. (3000+8000-8500)
In the Test’s answer calculation based on 500 units. (answer B)
Why we do not take into account closing inventory?Thank you very much
The difference in the profits is due to the change in the inventory over the period (if you watch the lecture you will see what I mean).
Because they produced 8,000 and sold 8.500, it means that the inventory reduced by 500 units.
The difference in profits is always the change in inventory x the fixed production overheads per unit. (Both the opening and the closing inventories will have been valued differently)
The ACCA does not release past exams for Paper F2.
You need to buy a Revision Kit from one of the ACCA approved publishers. They do not contain past exams but they do contain lots of exam standard questions.
Can you please share the detailed explanation of this question or direct me to the lecture link. I am new to this platform. Thanks!
You can find all of our free Paper MA study resources linked from this page:
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