Budgeted costs and revenues ($ per unit):

Sales price:                                    100

Variable production costs:           36

Fixed production costs:                20

The company uses absorption costing. In

the most recent period, 4,000 units were produced and 3,000 units were sold.

Actual sales price variable costs and fixed production costs agreed to

budgeted. Fixed production costs were over-absorbed by $2,000. There was no

opening inventory.

If the company had used variable costing instead of

absorption costing, the profit would be:

XYZ Ltd. budgeted to

make and sell 5,000 units of its product in 2020. The selling price is $8 per

unit and the variable cost $3 per unit. Fixed production costs were budgeted at

$20,000 for the year. The company uses absorption costing and budgeted an absorption

rate of $4 per unit. During 2020 it became apparent that sales demand would

only be 4,000 units. The management concerned about the apparent effect of the

low volume of sales on profit, decided to increase production for the year to

7,000 units. Actual fixed costs were still expected to be $20,000 in spite of

the significant increase in production volume.

The cost of sales and gross profit using the

absorption costing method if the company produces 7,000 units is:

Which of the following statements about predetermined overhead absorption rates are true?