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CA Intermediate · Cost and Management Accounting · Marginal Costing

Which of the following is treated as a product cost (included in inventory valuation) under marginal costing?

Variable manufacturing cost is the product cost under marginal costing. Only variable costs are carried into inventory valuation, while all fixed costs, whether manufacturing, administration or selling, are treated as period costs and charged to profit in the period they are incurred.

  1. AVariable manufacturing costCorrect
  2. BFixed manufacturing overhead
  3. CFixed administration overhead
  4. DFixed selling overhead

Explanation

Under marginal costing only variable costs are charged to products and included in stock valuation. Fixed manufacturing overhead is treated as a period cost and written off in the period incurred, so options B, C and D are wrong.

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