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CA Intermediate · Cost and Management Accounting · Marginal Costing

Under marginal costing, which statement about the valuation of closing stock of finished goods is correct?

Closing stock under marginal costing is valued at variable cost of production only. Fixed costs are treated as period costs and written off against contribution in the period incurred, so none of them is carried forward in stock. Absorption costing instead includes fixed production overheads.

  1. AIt includes variable production cost onlyCorrect
  2. BIt includes variable production cost and a share of fixed production overheads
  3. CIt includes only direct material cost
  4. DIt is valued at selling price less contribution

Explanation

In marginal costing, only variable costs are treated as product costs, so stock is valued at variable production cost. Fixed costs are treated as period costs and charged against the period's contribution. Including fixed production overhead is the practice under absorption costing.

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