Economics · Cost Accounting
A firm produced 50,000 units but only sold 42,000 units during the period. The variable production cost was 15 per unit, and total fixed manufacturing overheads were 2,50,000 for the period. There were no opening stocks of finished goods. Which of the following statements accurately reflects the impact of Absorption Costing versus Marginal Costing on the financial statements?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1The two methods will yield identical profit figures because the fixed manufacturing overheads are absorbed based on the units sold, not the units produced.
- 2The value of the closing stock under absorption costing will be 1,20,000, while under marginal costing it will be 1,60,000, leading to a higher profit in marginal costing.
- 3The profit under absorption costing will be 40,000 higher than marginal costing because 8,000 units of inventory are carrying a portion of the fixed manufacturing overheads into the next period.✓
- 4The profit under marginal costing will be 40,000 higher than the profit under absorption costing because all fixed costs are written off in the period they are incurred.
Correct answer
The profit under absorption costing will be 40,000 higher than marginal costing because 8,000 units of inventory are carrying a portion of the fixed manufacturing overheads into the next period.
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