Questions 1

Budgted Fixed Production 48000

Budgted Production 12000
Budgted Sales 11720
OAR per unit 4
Closing Inventory 280

Profit Difference ( Opening - Closing ) * Fixed Overhead per unit

-1120
Ans : B

Tutorial Notes
If Closing Inventory IS greater compared to Opening , Absorption Costing would generate higher profit
If opening Invesntory is greater compated to closing , Marginal Profit would generate higher profit

Questions 2

Variable costs per unit 5

Fixed Production per unit 3
( 1 unit @ 3 Oar per unit )
Production 2000
Sales 1800
Closing Inventory 200
Absorption Profit 3600

Marginal Profit = Absorption Profit + ( Opening - Closing ) * Fixed Overhead per unit
3000
Ans ; B

Questions 3

Budgeted Pdn 14000

Budgeted Sales 12500
Budgeted Fixed PDn costs 60000
Budgeted Fixed Selling costs 12000
Absoprtion Profit 36000
Normal Level of activity 15000
OAR per unit 4
Closing Inventory 1500

Marginal Profit = Absorption Profit + ( Opening - Closing ) * Fixed Overhead per unit
 30000

Note

The normal level of activity is the long-term, expected level of production or activity that a company assumes it will achieve

Questions 4

Month 1
Sales 2600
PDn 2700
Opening 0
Closing 100

Ans : C

Month 1: More units were produced than sold so profit under Absorption costing will exceed profit under Marginal costing

Month 2: More units were sold than produced so profit under Marginal costing will exceed profit under Absorption costing

Questions 5

Absorption Profit 2000

Marginal Profit -3000
Fixed PDn Overhead per unit 2
Sales 10000

Marginal Profit = Absorption Profit + ( Opening - Closing ) * Fixed Overhead per unit
-3000 = 2000 + ( O - C) *2
O-C -2500

Sales = Opening + PDn - Closing

Sales = ( O- C) + pdn
10000 = -2500 + pdn
PDn 12500

Questions 6

Standard hour per unit 4

Fixed Pdn OAR per hour 12
Fixed pdn per unit ( 4 hrs * $ 12 per hour ) 48
Actual Production 20000
Actual Labour hour 100000
Actual Sales 18000
Absorption Profit 464,000.00
Closing Inventory 2000

Marginal Profit = Absorption Profit + ( Opening - Closing ) * Fixed Overhead per unit
368,000.00

Questions 7

Pdn 2000
Sales 1000
Fxed Pdn costs 10
Profit Difference ( Opening - Closing ) * OAR
(10,000.00)

Tutorial note: Under or over absorption adjustments do not cause a difference between marginal and absorption costing pr
costing charges the same amount of fixed overhead as marginal costing.

Questions 8
Year 1 2
Opening 0 1000
Pdn 5000 6000
Sales 4000 6000
Closing 1000 1000
Ans : 2 and 3

(1) Is false: In a period in which production is greater than sales then profits calculated under absorption costing principles wo
marginal costing principles. Statement 1 is therefore false.

(2) Is true: Marginal costing inventory valuations (marginal production cost) are necessarily lower than those under absorption
they do not include fixed production overhears.

(3) Is true: Over any period for which production and sales quantities are the same there will be no change in inventory quanti
marginal costing profit and total absorption costing profit for that period. Over the three years involved total sales are 15,000
units.
Questions 9

Selling Price 250

Material 140
Labour 40
Direct Expenses 10
Varaiable overhead per unit 10
Contrbution per unit 50
Sales 4000

Contribution 200,000.00

Questions 10

Direct Material 18
Direct Labour 22
Direct Expenses 4
Prime costs 44
Variable pdn overhead 7
Marginal costs of Product 51

Ans ; C

Questions 11

Advantages of marginal costing include: ease of use and usefulness in decision making.

Advantages of absorption costing include: valuing inventory in line with IAS 2 and assistance in controlling overhead costs.

Questions 12

Budgted Pdn 14000

Budgted Sales 12000
Budgeted Fixed Pdn costs 63000
Budgted Selling Costs 12000
Normal Level of activity 14000
Oar per unit 4.5
Fixed Pdn overhead per unit ( 1 unit * Oar per unit ) 4.5
Absoprtion costing 36000
Marginal Profit = Absorption Profit + ( Opening - Closing ) * Fixed Overhead per unit
Ans 27000

Questions 13

Month 1 Month 2
Sales 3,800 4,400
PDn 3,900 4,200
Closing 100
Opening 200

Ans : C

Month 1: production > sales Absorption costing > marginal costing

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

Questions 14

Direct Material 4
Direct Labours 5
Varaibel pdn Oveherad 3
Fixed Pdn Overhead 2
Varaiable selling costs 3
Selling Price 20

Contrsbution per unit 5

Sales 800
Total Contribution 4,000.00

Questions 15

Let Sales be 100 units @ 10

Sales 1000
Varaible costs 600
Contribution 400
Fixed costs 100
Profit 300
Ans ; D

Question 16

Varieble costs 6
Sales 250000
Selling price 10
Fixed costs 400000

Sales Revenue 2500000

Variabel costs 1500000
1000000
Less Fixed costs -400000
Profit 600000

Questions 17

Opening Inventory 8500

Closing Inventory 6750
Marginal Profit 62100
Fixed Overhead absorption Rate 3
Fixed pdn overhead per unit ( 1 units * OAR ) 3

Marginal Profit = Absorption Profit + ( Opening - Closing ) * Fixed Overhead per unit
56850

Questions 18

Marginal Profit 72300

Opening Inventory 300
Closing Inventory 750
Fixed Overhead absorption Rate 5
Fixed pdn overhead per unit ( 1 units * OAR ) 5

Marginal Profit = Absorption Profit + ( Opening - Closing ) * Fixed Overhead per unit
74550
Questions 19

Includes as allowance for fixed pdn costs Absorption costing

represent the additionnal costs of producing extra uniMarginal cost

Questions 20

Profit Difference = ( Opening - Closing ) * Fixed PDn overhead

-10000 Ans : B

Fixed Pdn costs 30000

Budegted pdn 750
OAR per unit 40

Questions 21

Sales Revenue 90000

Cogs
Variable Pdn costs 45000
Fixed Pdn costs 30000
Less Closing Inventory -25000
50000
Under Absoprtion
Gross Profit 40000

Variable selling costs 5000

Fixed Selling costs 25000
Profit 10000
Ans : D

Questions 22

Sales 13000
Prodcution 15000
Closing 2000
Budgted Fixed pdn costs 3000
Fixed Overhead per unit 0.2

budgted Contribution 26000

Less Fixed costs 3000
Profit 23000

Marginal Profit = Absorption Profit + ( Opening - Closing ) * Fixed Overhead per unit
 23400
Ans ; B

Quetsion 23

The correct answer is A

Question 24

Opening Inventory 31000

Closing Inventory 34000
Marginal Profit 850500
Absorption Profit 955500
Budgeted Fixed costs 1837500

Marginal Profit = Absorption Profit + ( Opening - Closing ) * Fixed Overhead per unit
850500= 95500+(31000-34000)* FOAR
FOAR 35

Oar = Budegted pdn overhead / Budgted level of activity

Budgeted level of activity 52500

Questions 25

The corect answer is A

Notes
Profit figures only diffred if inventory changes in period

Questions 26

Let
Selling Price 10
Sales Units 100
Variable costs 4
Fixed costs 2

Sales 1000
Less Variable costs 400
Contribution 600
Less Fixed costs 200
Net Profit 400

10% increase in selling Price

Sales ( 10 *1.1 *100) 1100
Less Varaible ( 4*100) 400
Contribution 700 17%

10% increse in volume

Sales ( 10 * (100*1.1) 1100
Varaible costs ( 4*(100*1.1) 440
660 10.0%
ans : B

Questions 27
Full pDN costs 78.10

Notes
In case of Absorption costing Inventory is valued at full production cost both fixed and variable production costs

Questions 28

Sales 1,080,000.00
Less Costs of sales
Opening 0
Variable Pdn ( 12500 *44) 550000
Fixed PDN (12500 *25.6 ) 320000
Closing ( 500*69.6 ) -34800
835200

Gross Profit 244,800.00

Non Pdn Overhead 190000

Profit 54,800.00
Questions 29

Selling Price 20
Material cost per unit 4
Variable cost per unit 3
Fixed cost per unit 6
Variable selling costs 2
Total Variable costs 9

Contribution per unit 11

Contribution per unit sold = Selling price per unit - Total variable cost per unit

Questions 30

Budgeted Overhead 197,200.00

Actual Ovehead 195,618.00
Under-absorbed Overhead 7,292.00
Actual Labour Hours 7,640.00

Absorbed Overhead 188,326.00

( Absorbed Overhead = OAR per hour * Actual Labour Hour )
Oar Per hour 24.65

Ans : B

Questions 31

Both False
Since Over absorption doesnot affect profit and when sales in lower , there exists closing inventory and
absorption costing would have greater profit

Questions 32

Pdn overhead 20500

Machine Hour 20200
OAR 1.2
Absorbed Overhead 24240
Over Absorption 3740

DR Pdn overhead 20500

Dr over Absoprtion 3740
Cr Absorbed Overhead 24240

Ans : A ( 1 and 2)
Questions 33

Standard hour per unit 4

Fixed Pdn OAR per hour 12
Fixed pdn per unit ( 4 hrs * $ 12 per hour ) 48
Actual Production 20000
Actual Labour hour 100000
Actual Sales 18000
Absorption Profit 464,000.00
Closing Inventory 2000

Marginal Profit = Absorption Profit + ( Opening - Closing ) * Fixed Overhead per unit
368,000.00

Questions 34

Total costs s 17800

Floor Areae
Cost center 1 2700
Cost center 2 1800
4500

Cost to cost center 2 7,120.00

Questions 35

Ans : Overhead Absorption Rate ( accounting for overheads which involves attributing them to cost units using
predetermined rates)

Questions 36

Material costs 450

Labour costs (15 + 5 ) *12 240
PDN overhead
Department 1 ( 15hrs * 5 per hour ) 75
Department 2 (8 hrs *2 per machine hour ) 16
Total costs 781

Questions 37

Standard cost of materials:

Material M1: 40 kg * $9.80/kg 392
Material M2: 6 liters * $8.00/liter 48
Grade 1 direct labor: 12 hours * $9.00/hour 108
Grade 2 direct labor: 6 hours * $12.00/hour 72
Prime costs 620
Fixed production overheads = (12 hours + 6 hours) * 333
953
Total units 500
Costs per unit 1.91

Questions 38

Actual production 220000

Actual Overhead 1000000
Over absorbed 100000
Absorbed Overhead 1100000
OAR 5.00

Questions 39
Incurred to date 4,917.00
Direct costs 1,735.00
Fixed pDn overhead ( 82 * 9) 738.00
Expected Pdn costs 7,390.00

Questios 40
A B
40000 32000
Dep 1 40% 60%
Dep2 50% 40%

A B
40000 32000
Dep2 10000 8000
50000 40000
Dep 1 12000
 62000

Ans : 62000

Questions 41

Absorption Profit 230000

Production 22000
Sales 20000
Closing Inventory 2000
Fixed Pdn costs per unit 4

Marginal Profit = Absorption Profit + ( Opening - Closing ) * Fixed Overhead per unit
222,000.00

Questions 42
1 units = 6 minutes
Material ( 2kg @ 2.40) 4.8 1 units
Labour ( 0.1 hours * 1) 0.1
Fixed pdn overhead ( 0.1 hours @2) 0.2
Standard costs per unit 5.1

Questions 43

The correct answer is C ( Only 3 )

Questions 44

Admin Overhead 19,540.00

Costs of sales 185,520.00
Absorbed Overhead 18,552.00
Under Absorption 988.00

Dr under Absorption 988.00

Cr Admin ovehead 988.00

Ans : 1

Questions 45
Budgeted Overead 120,000.00
Actual Overhead 132,000.00
Budgeted Labour Hour 40,000.00
Actual Hours 38,000.00
Oar per hout 3.00

Abosrbed Overhead 114,000.00

Under Absorption 18,000.00

Questions 46

Budgted Machine hour 2,600.00

Actual Machine hour 2,400.00
Budgted Overhead 135,200.00
Actual Overhead 128,000.00
OAR 52
Absorbed Overhead 124,800.00
Under Absorption 3,200.00

Questions 47

Correct answer is B ( 2 and 3)

Questions 48

Actual units 220,000.00

Actual Overhead 1,000,000.00
Over-absorbed 100,000.00
Absorbed Overhead 1,100,000.00
OAR 5.00

Questions 49

OAR per machine hour 20

Actual Machine hour 1,760.00
Capacity Varaince 3600 FAV
Voume Varaince 2400 Adver

Capacity Variance = Actual hour - budgeted hour ) * OAR per hout

3600 = 1760 - B.H) *20
Budgted hour 1580
Questions 50

The advantages of marginal costing compared to absorption costing are:

Provides information that is useful for short-term decision making: Marginal costing separates fixed and variable costs,
providing clear information on how costs behave at different levels of production. This information is particularly useful
for short-term decision making, such as pricing decisions and product mix decisions.

Over/under absorption is avoided: Marginal costing does not allocate fixed manufacturing overheads to products.
Therefore, it avoids the issue of over or under absorption of fixed overheads, which can occur in absorption costing when
actual overheads differ from the budgeted or absorbed overheads.

The accruals concept is applied fully: Marginal costing treats fixed manufacturing overheads as period costs rather than
product costs. This approach aligns with the accruals concept, where costs are recognized in the period in which they are
incurred rather than when products are sold.
Therefore, the correct answer is:

d. 1, 2 and 3

Questions 51

PDN 25000
Sales 28000
Opening 3000
Fixed production overhead per unit 7.6

Profit Difference 22,800.00

Quetsions 52 and 53

The statements listed relate to different approaches for overhead costing methods, such as traditional costing and activity-bas

Overheads are allocated and apportioned to cost centers

This aligns with traditional costing methods, where overheads are allocated to departments or cost centers based on pre-
determined rates.

Recognize the diversity and complexity of operations

This is a key feature of activity-based costing (ABC), which considers the complexity of operations and uses multiple cost
drivers to assign costs accurately.
Tend to apportion too great a share of overheads to high-volume products

This is a limitation of traditional costing, which often uses simplistic allocation bases (e.g., labor hours or machine hours), leadi
overcosting high-volume products and undercosting low-volume, resource-intensive products.

Use both production volume-related and transaction-based cost drivers

This describes ABC, which employs both types of cost drivers to better reflect the resource consumption by different products
activities.

Statements 1 and 3 are associated with traditional costing methods.

Statements 2 and 4 are associated with activity-based costing (ABC).

Questions 54

Absorption Profit 45,600.00

PDN 12200
Sales 11800
Closing 400
OAR 23.5

Profit Difference 9400

Marginal Profit 36,200.00

Questions 55

Wages of materials stores personnel

These are production overhead costs, as they represent indirect labor costs associated with managing and storing materials,
a supporting activity for production.

Questions 56

40 per labour hour

Questions 57
Incurred to date 4,917.00
Direct costs 1,735.00
Fixed pDn overhead ( 82 * 49) 4,018.00
Expected Pdn costs 10,670.00
* Fixed Overhead per unit

would generate higher profit

uld generate higher profit

Fixed overhead per unit = ( 1unit @ 4 Oar) =4

n or activity that a company assumes it will achieve under regular operating conditions.

Month 2
3400
3200
200
0

n costing will exceed profit under Marginal costing

osting will exceed profit under Absorption costing

rence between marginal and absorption costing profits. They simply ensure that absorption

3
1000
4000
5000
0

ts calculated under absorption costing principles would show a higher profit than under

t) are necessarily lower than those under absorption costing (full production cost) because

he same there will be no change in inventory quantities and hence no difference between
Over the three years involved total sales are 15,000 units and total production is 15,000
 Note: Contribution per uni = Seling price - all varaible costs

cision making.

AS 2 and assistance in controlling overhead costs.

Increase by 10% Changes
1100
600
500 25.0%
108000

42000
28000
-10000
60000
-2000
46000

6000
25000
15000
 10% decrease in Variable
costs Changes
1000
360
640 6.7%
200
440

oth fixed and variable production costs

Varaible pdn cost per unit 44

Actual PDN 12500
Fixed pdn 320000
OAR 25.6
Full Pdn costs 69.6
re exists closing inventory and
es attributing them to cost units using
 1 2
28000 20000

10%

1 2
28000 20000
2000
30000
1 units = 6 minutes
0.1 hours
inal costing separates fixed and variable costs,
oduction. This information is particularly useful
x decisions.

ed manufacturing overheads to products.

ads, which can occur in absorption costing when

acturing overheads as period costs rather than

ts are recognized in the period in which they are

methods, such as traditional costing and activity-based costing (ABC). Here's a breakdown:

d to departments or cost centers based on pre-

omplexity of operations and uses multiple cost

tion bases (e.g., labor hours or machine hours), leading to
e-intensive products.

ect the resource consumption by different products or

ts associated with managing and storing materials,