Reconciling Marginal and Absorption Costing Profits

Steps:

• Calculate inventory change: Closing inventory (6000 units) - opening inventory (4000 units) = +2000 units increase.
• Determine fixed overhead deferred in inventory: 2000 units × $2 per unit =$4000.
• Reconcile profits: Absorption profit = marginal profit + fixed overhead in inventory increase = $9000 +$4000 = $13000.
• The $13000 represents the profit (misstated as "production overhead") under absorption costing.

Why C is correct:

• Absorption costing profit exceeds marginal by the fixed overhead absorbed into inventory increase, per standard reconciliation formula: difference = inventory change × absorption rate.

Why the others are wrong:

• A: Ignores inventory effect; equals marginal profit + half the adjustment ($9000 +$1000, incorrect).
• B: Subtracts inventory effect from marginal profit, reversing the reconciliation.
• D: Adds double the inventory effect ($9000 +$8000), overstating the adjustment.

Final answer: C