Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA MA – FIA FMA › Profit under absorption costing
- This topic has 1 reply, 2 voices, and was last updated 1 year ago by John Moffat.
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- May 29, 2023 at 11:55 pm #685420
The budget for Bright’s first month of trading, producing and selling matchbox boats was as follows:
$000
Variable production cost of boats 45
Fixed production costs 30
––––
Production costs of 750 boats 75
Closing inventory of 250 boats (25)
––––
Production cost of 500 sold 50
Variable selling costs 5
Fixed selling costs 25
––––
80
Profit 10
––––
Sales revenue 90
––––
The budget has been produced using an absorption costing system.Q. Assume that at the end of the first month unit variable costs and fixed costs and selling price
for the month were in line with the budget and any inventory was valued at the same unit
cost as in the above budget.
However, if production was actually 700 and sales 600, what would be the reported profit
using absorption costing?
A $9,000
B $12,000
C $14,000
D $15,000Answer is D. $15,000
Variable production cost of boats 45/750 × 700 42
Fixed production costs (absorbed) 30/750 × 700 28
––––
Production costs of 700 boats 70
Closing inventory of 100 boats (10)
––––
Production cost of 600 sold 60
Under?absorbed overhead 30 – 28 2
Variable selling costs 5/500 × 600 6
Fixed selling costs 25
––––
93
Profit 15
––––
Sales revenue 90/500 × 600 108> Please help me solve this. I can’t understand how 15k is the answer I am getting 12k profit when solving it using statement of profit or loss proforma.
May 30, 2023 at 9:09 am #685446Although the answer from your book is correct and you have the workings, it is a very strange presented question and not the type that will be asked in the real exam.
Again you have the workings, so there is no point in me simply repeating them. I don’t know how you arrived at an answer of 12,000 and so I cannot explain.
Have you watched my free lectures on this? The lectures are a complete free course for Paper MA and cover everything needed to be able to pass the exam well.
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