A Level Accounting (9706)•9706/13/O/N/22
Explanation
Inventory change absorbs fixed overheads in absorption costing
Steps:
- Calculate inventory increase: closing inventory (3000 units) minus opening inventory (2000 units) = 1000 units.
- Determine extra fixed overhead absorbed: 1000 units × 3000.
- Adjust marginal profit for absorption: marginal profit (3000) = $13000.
Why C is correct:
- Absorption costing includes fixed overheads in unit costs, so profit increases by fixed overhead absorbed in inventory rise, per standard costing formula: absorption profit = marginal profit + (closing - opening inventory) × fixed overhead rate.
Why the others are wrong:
- A: Subtracts extra absorption, reversing the inventory effect.
- B: Subtracts double the extra absorption ($6000).
- D: Adds double the extra absorption ($6000).
Final answer: C
Topic: Traditional costing methods
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