CA Intermediate · Cost and Management Accounting · Marginal Costing
Which of the following statements about the treatment of fixed costs under marginal costing is correct?
Under marginal costing, fixed costs are treated as period costs and charged in full to the Profit and Loss Account of the period in which they are incurred. They are not included in stock valuation, which contains only variable costs. Carrying them forward is an absorption costing practice.
- AFixed costs are included in the valuation of closing stock
- BFixed costs are charged to the Profit and Loss Account of the period in which they are incurredCorrect
- CFixed costs are apportioned to products on the basis of units produced
- DFixed costs are carried forward to the next period to the extent of unsold units
Explanation
Under marginal costing only variable costs are treated as product costs and included in inventory valuation. Fixed costs are period costs and are written off in full against the contribution of the period. Options carrying fixed cost into stock describe absorption costing.
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