Absorption & Marginal Costing – Past Exam Questions

Lecturer: Sasenarine Ramnarine (ACCA)

(1). 9,250 units of a company's single product were sold at $55 per unit in a period during which
9,460 units of the product were manufactured. There was no inventory at the start of the period.
The company uses a marginal costing system as the basis for profit statements. Unit costs of the
product were as follows:

$ per unit
Direct costs 26.90
Variable production overhead 3.20
Fixed production overhead 12.60
Variable non-production overhead 1.90
Fixed non-production overhead 5.80

What total contribution would be reported in the profit statement for the period?
A $206,030
B $212,750
C $217,580
D $230,325

(2) The following data relate to a production cost centre for the period just ended:
Budgeted overhead expenditure $53,900
Predetermined overhead absorption rate 24.50 per machine hour
Actual activity 2,070 machine hours
Actual overhead expenditure $54,670

What was the overhead over/under absorption in the period?

A $770 over absorbed
B $770 under absorbed
C $3,185 under absorbed
D $3,955 under absorbed

(3) Production costs of product X have been classified in various ways:

Prime costs $50.80 per unit
Variable costs $54.44 per unit
Fixed overheads $15.20 per direct labour hour
Direct labour 2.6 hours per unit at $12.00 per hour
Variable overheads $1.40 per direct labour hour
Direct materials $19.60 per unit

What is the total production cost per unit of product X?

A $105.24
B $144.76
C $93.96
D $125.16

(4) Direct labour hours are used as the basis for overhead absorption in a production cost centre.
The following data are available for a period:
Actual direct labour hours worked 9,760
Actual overheads incurred $86,920
Overhead under-absorption $2,496
Budgeted direct labour hours 10,000

What was the overhead absorption rate in the period?

A $8.65
B $9.16
C $8.44
D $8.94
(5) Company Z uses a marginal costing system as the basis for its profit statements for
management. 4,660 units of the Company’s single product were sold in Period 6 for a total
revenue of $88,540. Production in the period was 4,730 units.

Unit costs of the product are:

$ per unit $ per unit
Direct costs 6.20
Variable production overhead 0.90
Fixed production overhead 4.60 11.70
Variable non-production overhead 1.40
Fixed non-production overhead 2.90 4.30
Total costs 16.00

What is the total contribution in Period 6?

A $48,335
B $55,454
C $34,018
D $48,930

(6) A company manufactures a single product with the following unit costs:
Per Unit
Direct materials 7.45
Direct labour 5.20
Variable production overhead 1.75
Fixed production overhead 6.40
Variable non-production overhead 0.90
Fixed non-production overhead 3.25

In marginal costing, what amount would be deducted from sales to calculate the contribution per
unit of the product?
A $14.40
B $20.80
C $12.65
D $15.30

(7) Which of the following situations will result in overhead under-absorption?

(1) Actual overhead less than budgeted overhead
(2) Budgeted overhead less than absorbed overhead
(3) Absorbed overhead less than actual overhead

A 1 only
B 1 and 2
C 3 only
D 2 and 3

(8) The predetermined overhead absorption rate in a production cost centre for a period was
$14·60 per machine hour.
Budgeted and actual overheads and machine hours in the cost centre for the period were:

Overheads Machine hours

Budget $94,900 6,500
Actual $96,720 6,745

What was the overhead over/underabsorption?

A $1,757 over-absorbed
B $1,820 under-absorbed
C $3,577 over-absorbed
D $3,577 under-absorbed

(9) A company’s single product has the following costs:

$ per unit $ per unit
Production costs:
Direct 4.60
Variable overhead 0.80
Fixed overhead 2.70 8.10
Non-production costs:
Variable overhead 0.50
Fixed overhead 1.40 1.90
10.00

Marginal costing is used for the preparation of profit statements. In the last period, sales were
8,400 units, at $11.20 per unit, and production was 8,530 units.

What was the total contribution in the period?

A $26,040
B $48,720
C $43,753
D $44,520

(10). Which of the following is a reason why profit for a period for a manufacturer will differ
depending upon whether absorption costing or marginal costing is used?

A Changes in raw material inventory during the period

B Over-absorption of fixed production overhead
C Closing finished goods inventory higher than opening inventory
D Expenditure on variable manufacturing costs in excess of budget
(11) A company, which manufactures and sells a single product, has the following sales and
production data for a period:

Production 20,100 units

Sales 18,900 units
Profit has been calculated for the period, using both absorption costing and marginal costing.
Which combination of profit figures are consistent with the above production and sales data?

Absorption profit Marginal profit

A $10,000 $12,000
B $12,000 $10,000
C $12,000 $12,000
D $10,000 $11,200

(12) What production overheads are included in product costs using absorption costing?

A Direct overhead costs only

B Fixed overhead costs only
C Variable overhead costs only
D Both fixed and variable overhead costs

(13) An accountancy practice had an overhead budget of $21,060 for a period. Actual overhead
expenditure in the period was $21,720. Overheads are absorbed on the basis of client hours
worked which totalled 2,375 in the period and resulted in under-absorption of $345.

What was the budgeted overhead absorption rate per client hour?
A $8·72
B $9·15
C $9·00
D $9·29

(14) A company manufactures a single product. Unit costs are:

$/Unit
Variable production 14·75
Fixed production 8·10
Variable selling 2·40
Fixed selling 5·35
400,000 units of the product were manufactured in a period, during which 394,000 units were
sold. There was no inventory of the product at the beginning of the period.

Using marginal costing, what is the total value of the finished goods inventory at the end of the
period?

A $88,500
B $102,900
C $137,100
D $183,600

(15) The following information relates to Product X for Month 1:

Opening inventory Nil

Production 900 units
Sales 800 units

If marginal costing rather than absorption costing is used what is the effect on profit and
inventory valuation?

A Profit higher Inventory valuation higher

B Profit higher Inventory valuation lower
C Profit lower Inventory valuation higher
D Profit lower Inventory valuation lower

(16) A company manufactures a single product which is sold for $70·00 per unit. Unit costs are
$/Unit
Variable production 29·50
Fixed production 21·00
Variable selling 4·80
Fixed selling 9·00

20,000 units of the product were manufactured in a period during which 19,700 units were sold.

Using marginal costing, what was the total contribution made in the period?
A $703,290
B $714,000
C $384,150
D $390,000
17). What will result in under-absorption of fixed production overhead?

A Absorption based on actual expenditure and actual volume of activity which are both below
budget
B Actual expenditure below budget and actual volume of activity same as budget
C Actual volume of activity above budget and actual expenditure below budget
D Actual volume of activity below budget and actual expenditure same as budget

(18). A company planned to produce 4,000 units of Product X during a particular year and
budgeted its fixed production overheads for the year at $20,000. During the year it actually
produced 4,200 units of Product X and it incurred fixed production overheads of $21,840. A
predetermined fixed production overhead absorption rate per unit is applied.

Which of the following statements is true?

A Fixed overheads were under-absorbed by $840
B Fixed overheads were over-absorbed by $840
C Fixed overheads were over-absorbed by $1,000
D Fixed overheads were under-absorbed by $1,840

(19). A company holds inventory of raw materials but has no inventory of work-in-progress or
finished goods.

Which of the following statements is TRUE about the company’s profit for a period comparing
absorption costing with marginal costing?

A It will be lower using absorption costing

B It will be lower using marginal costing
C It will be the same
D It is not possible to determine without revenue and cost information

(20) 25,000 units of a company’s single product are produced in a period during which 28,000
units are sold. Opening inventory was 7,000 units. Unit costs of the product are:

$ per unit
Direct costs 16·20
Fixed production overhead 7·60
Fixed non-production overhead 2·90

What is the difference in profit between absorption and marginal costing?

A $22,800
B $30,400
C $31,500
D $42,000