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CMA Foundation · Fundamentals of Financial and Cost Accounting · Application of Cost Accounting for Business Decisions

Under marginal costing, which of the following costs is treated as a product cost and included in the valuation of closing stock?

Direct materials, direct labour and variable overheads are included in stock valuation under marginal costing. Only variable costs are product costs. All fixed costs, such as rent, salaries and depreciation, are period costs written off against contribution in the period they are incurred.

  1. AFixed factory rent
  2. BDirect materials, direct labour and variable overheadsCorrect
  3. CFixed administrative salaries
  4. DDepreciation on factory plant

Explanation

Marginal costing values stock only at variable cost, which comprises direct materials, direct labour, direct expenses and variable overheads. Fixed costs such as rent, salaries and depreciation are treated as period costs and charged to the period's profit in full.

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