Determine profit by using absorption costing, Cost Accounting

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Determine Profit by Using Absorption Costing

Assuming the fixed overhead absorption rate was Ksh.3 per litre, then what would be the profit utilizing absorption costing?

a) Ksh.41, 850

b) Ksh.56, 850

c) Ksh.67, 350

d) Ksh.82, 350

Solution

Stock levels reduced; consequently the absorption costing profit would be lower. So you can remove options (c) and (d).

Difference in profit = (8,500 - 6,750) x Ksh.3

= Ksh.5, 250

Absorption costing profit = Ksh.62, 100 - Ksh.5, 250

= Ksh.56,850

The right answer is (b)

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