CA Intermediate · Cost and Management Accounting · Marginal Costing
Under marginal costing, which statement about stock valuation is correct?
Under marginal costing, stock is valued at variable cost only, and fixed costs are charged to the period in which they are incurred. No fixed overhead is carried forward in closing stock, which is the key difference from absorption costing.
- AClosing stock includes a share of fixed manufacturing overhead
- BClosing stock is valued at variable cost only, and fixed costs are charged to the periodCorrect
- CFixed costs are carried forward to the next period through stock
- DOpening stock is valued at total cost while closing stock is valued at variable cost
Explanation
In marginal costing only variable costs are inventoried; fixed costs are treated as period costs and written off against contribution in the period incurred. Absorption costing, by contrast, carries a share of fixed overhead in stock.
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