WTD Ltd produces a single product. The management currently uses marginal costing but is considering using absorption costing in the future.

The budgeted fixed production overheads for the period are £500000. The budgeted output for the period is 2000 units. There were 800 units of opening inventory at the beginning of the period and 500 units of closing inventory at the end of the period.

If absorption costing principles were applied, the profit for the period compared to the marginal costing profit would be:

(a) £75000 higher

(b) £75000 lower

(c) £125000 higher

(d) £125000 lower

(2 marks)

CIMA P1 Management Accounting: Performance Evaluation