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Question
The net profit was N2,650,000 using absorption costing and the closing inventory was 14,600 units. Production overhead absorption rate was N18.50 per unit. If the Non-production absorption rate was N14.00 per unit, then the net profit using marginal costing is:
A. N2,379,900
B. N2,445,600
C. N2,650,000
D. N2,854,400
E. N2,920,100
Answer
Answer:
A. N2,379,900
Explanation:
To convert the profit from absorption costing to marginal costing, we need to adjust for the fixed production overheads included in the closing inventory. The formula is:
Change in Profit = Change in Inventory × Fixed Production Overhead per unit
The change in profit due to inventory is calculated as:
=N270,100 = N270,100
Since we are moving from absorption to marginal costing, we subtract this amount from the absorption costing profit:
N2,650,000 − N270,100 = N2,379,900
Thus, the profit using marginal costing is N2,379,900.
- Tags: Absorption Costing, Inventory Valuation, Marginal Costing, Profit Calculation
- Level: Level 1
- Topic: Costing Techniques
- Series: MAY 2016
- Uploader: Joseph