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kaplan practice exam question 23

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA MA – FIA FMA › kaplan practice exam question 23

  • This topic has 5 replies, 3 voices, and was last updated 1 year ago by John Moffat.
Viewing 6 posts - 1 through 6 (of 6 total)
  • Author
    Posts
  • July 26, 2021 at 11:53 am #629467
    tushargujral
    Member
    • Topics: 65
    • Replies: 94
    • ☆☆

    23
    Below is the standard cost card for one unit of product K.
    $/unit
    Selling price 35
    Direct materials 20
    Direct labour 4
    Variable overhead 1
    Fixed overhead 6

    Production was 50,000 units and sales 60,000 units. The opening inventory was 25,000 units. The
    profit calculated using marginal costing was $180,000.
    What is the profit using absorption costing?

    $30,000
    $120,000
    $210,000
    $240,000

    in solution, they have calculated the closing- opening as (15000-25000)x 6

    I dont get how they get 15000

    July 26, 2021 at 12:43 pm #629475
    John Moffat
    Keymaster
    • Topics: 56
    • Replies: 51582
    • ☆☆☆☆☆

    Given that the opening inventory was 25,000 and they sold 10,000 more than they produced, the closing inventory must be 15,000 units.

    In fact you did not even need to calculate the closing inventory. As I explain in my free lectures, the only difference ever between the marginal profit and the absorption profit is the change in inventory multiplied by the fixed overheads per unit.

    Given that they sold 10,000 more than they produced, the inventory must have changed by 10,000 units over the period, and 10,000 x $6 = $60,000 which is the difference in the profit.

    July 29, 2021 at 6:34 am #629734
    tushargujral
    Member
    • Topics: 65
    • Replies: 94
    • ☆☆

    yes sir I know the fact we don’t need to calculate the closing inventory but was reviewing the answer to what they have calculated put me thinking how did they work out

    July 29, 2021 at 8:46 am #629764
    John Moffat
    Keymaster
    • Topics: 56
    • Replies: 51582
    • ☆☆☆☆☆

    Has the first line of my previous reply now made it clear?

    July 30, 2021 at 3:51 am #629813
    johnbriane
    Member
    • Topics: 170
    • Replies: 160
    • ☆☆☆

    Can we calculate the closing inventory like this sir

    Opening inventory 25000
    (Add) purchases / production 50000
    ( less) sales -60000

    Which gives us 15000 units
    So can we calculate closing inventory from this manner as well in any absorption or marginal costing question?

    And will we get the correct closing inventory ultimately?

    July 30, 2021 at 10:13 am #629842
    John Moffat
    Keymaster
    • Topics: 56
    • Replies: 51582
    • ☆☆☆☆☆

    Yes, you can calculate the closing inventory like that. However, as I explained in my previous reply (and in my free lectures) we do not actually need to know the closing inventory in this question – only the change in inventory over the period.

    It is only relevant for questions asking for the absorption profit when we are given the marginal profit (or asking for the marginal profit when we are given the absorption profit).

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