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CA Intermediate · Cost and Management Accounting · Marginal Costing

Which one of the following costs is treated as a period cost and is therefore excluded from the valuation of closing stock under marginal costing?

Fixed factory rent is the correct answer. Under marginal costing, fixed costs are treated as period costs and charged to the profit and loss account of the period, so they are not included in stock valuation, whereas variable materials, labour and overheads are.

  1. ADirect labour paid on a per-unit basis
  2. BVariable factory overhead
  3. CFixed factory rentCorrect
  4. DDirect materials consumed

Explanation

Under marginal costing only variable costs (direct materials, direct labour, variable overheads) are charged to products and stock. Fixed costs such as factory rent are written off in the period in which they are incurred. The other three options are variable and form part of the stock value.

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