You visited us 1 times! Enjoying our articles? Unlock Full Access!

Ratios and OMO

Income comput...

Question

Income computed by the absorption costing method will tend to exceed income computed by the direct costing method if ___________.

Units produced exceed units sold

Right on! Give the BNAT exam to get a 100% scholarship for BYJUS courses

Fixed manufacturing costs decrease

No worries! We‘ve got your back. Try BYJU‘S free classes today!

Variable manufacturing costs decrease

No worries! We‘ve got your back. Try BYJU‘S free classes today!

Units sold exceed units produced

No worries! We‘ve got your back. Try BYJU‘S free classes today!

Open in App

Solution

The correct option is A Units produced exceed units sold
Below example can be given to understand the situation. No. of units produced 600 and No. of units sold 450.

Under Marginal Costing Under absorption Costing
No. Of Units sold 450 450
Sales @ Rs.8 Per Units Rs.3600 Rs.3600
Variable Cost @ Rs.5 P/U Rs.2250 Rs.2250
Fixed Cost Rs. 900 Rs, 675 *
Profit Rs.450 Rs.675
-------------- ------------
* Fixed Cost Rs.900 for 600 units. Proportionate Fixed cost for 450 units Rs.900/600*450 i.e Rs.675.

It is evident that higher profit is reported under absorption costing method by Rs.225 if units produced exceed units sold.

Suggest Corrections

Similar questions

If a computer manufacturing company introduces a new model and finds that orders from wholesalers far exceed the number of units that are being produced,

Q. What will be the difference in net earnings computed using direct costing as opposed to absorption costing if the ending inventory increases with respect to the beginning inventory in terms of units?

Q. A company has found that when

x

units of a product are manufactured and sold, its revenue is given by

x^{2} + 100 x

dollars and its costs are given by

240 x + 500

dollars. How many units must be produced and sold to make a profit of

10, 000

dollars? (Hint: profit

=

revenue-costs)

Q. For manufacturing a certain item, the fixed cost is

Rs. 6000

and cost of producing each unit is

Rs. 20.

Then the average cost of producing

15

units is

[2 marks]

Q. In a factory, there are two machines

A

and

B

producing toys. They respectively produce

60

and

80

units in one hour.

A

can run a maximum of

10

hours and

B

a maximum of

7

hours a day. The cost of their running per hour respectively amounts to

2, 000

and

2, 500

rupees. The total duration of working these machines cannot exceed

12

hours a day. If the total cost cannot exceed Rs.

25, 000

per day and the total daily production is at least

800

units, then formulate the problem mathematically.

Join BYJU'S Learning Program