CA Intermediate · Cost and Management Accounting · Marginal Costing
In marginal costing, which of the following is treated as a period cost and is charged in full to the Profit and Loss account of the period?
Fixed manufacturing overhead is the period cost. Under marginal costing, inventory and product cost include only variable costs such as direct materials, direct labour and variable overhead, while fixed costs are charged in full against the contribution of the period in which they are incurred.
- AFixed manufacturing overheadCorrect
- BDirect labour
- CVariable factory overhead
- DDirect materials
Explanation
In marginal costing only variable costs are included in product cost and inventory valuation. Fixed costs, including fixed manufacturing overhead, are treated as period costs and written off in the period incurred. Direct labour, direct materials and variable overhead are product costs.
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