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Study Hub AC and MC mcq

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA MA – FIA FMA › Study Hub AC and MC mcq

  • This topic has 3 replies, 2 voices, and was last updated 11 months ago by John Moffat.
Viewing 4 posts - 1 through 4 (of 4 total)
  • Author
    Posts
  • July 8, 2024 at 5:41 pm #708051
    Rajshekharrsf
    Participant
    • Topics: 52
    • Replies: 81
    • ☆☆

    A company manufactures and sells a single product. In two consecutive months the following levels of production and sales (in units) occurred:

    Month 1 Month 2
    Sales 3,800 4,400
    Production 3,900 4,200
    The opening inventory for Month 1 was 400 units. Profits or losses have been calculated for each month using both absorption and marginal costing principles.

    13. Which of the following combination of profits and losses for the two months is consistent with the above data?

    Absorption costing profit/(loss) Marginal costing profit/(loss)
    Month 1 Month 2 Month 1 Month 2
    $
    A. 200 4,400 (400) 3,200
    B. (400) 4,400 200 3,200
    C. 200 3,200 (400) 4,400
    D. (400) 3,200 200 4,400

    The correct answer is C.

    Month 1: production > sales Absorption costing > marginal costing

    Month 2: sales > production marginal costing profit > absorption costing profit

    A and C satisfy month 1, C and D satisfy month 2; therefore C satisfies both.

    I have watched the lecture and I’m aware that When production is more than sales that absorption costing gives higher profits.

    But in this case, although the production is more than sales in month 1, there are 400 units of opening inventory, thereby, change in inventory = 100-400 = -300. As the inventory level is falling, the marginal profits should be higher than the absorption profits and not the other way around as in the answer. Am I correct?

    July 9, 2024 at 9:41 am #708117
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54699
    • ☆☆☆☆☆

    No.

    In month 1 the they are producing 100 more units then they are selling. So the inventory will increase by 100 units and will therefore be 500 units at the end of the month.

    Given that the inventory is increasing, the absorption profit must be higher than the marginal profit.

    July 20, 2024 at 4:19 pm #708703
    Rajshekharrsf
    Participant
    • Topics: 52
    • Replies: 81
    • ☆☆

    Sorry for the late response. I had been preparing for my university semester exam. It got over today.

    Thank you. I have understood.

    July 21, 2024 at 9:40 am #708718
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54699
    • ☆☆☆☆☆

    You are welcome 🙂

  • Author
    Posts
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  • The topic ‘Study Hub AC and MC mcq’ is closed to new replies.

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