CA Intermediate · Cost and Management Accounting · Marginal Costing
Which of the following is treated as a period cost, and therefore not included in the value of closing stock, when a firm values its inventory under marginal costing?
Fixed factory rent is a period cost under marginal costing. Only variable costs are charged to products and carried in closing stock, while fixed costs are written off in the period incurred. Direct labour, variable overhead and direct materials are all product costs.
- ADirect labour paid per unit produced
- BVariable factory overhead
- CFixed factory rentCorrect
- DDirect materials consumed
Explanation
Under marginal costing only variable costs (direct material, direct labour, variable overhead) are charged to the product and carried in stock. Fixed costs such as factory rent are written off in the period in which they are incurred. The other three options are variable costs and so form part of stock valuation.
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