CA Intermediate · Cost and Management Accounting · Marginal Costing
Which statement about marginal costing is correct under standard ICAI treatment?
Under marginal costing, fixed costs are charged against profit of the period in which they are incurred, as period costs. Only variable costs are carried in stock valuation, so profit can differ from absorption costing when stock levels change.
- AFixed costs are included in the valuation of closing stock
- BFixed costs are charged to the period in which they are incurredCorrect
- CVariable costs are treated as period costs
- DProfit always equals that under absorption costing
Explanation
In marginal costing only variable costs are inventory costs; fixed costs are treated as period costs and written off in the period incurred. Stock is therefore valued at variable cost. Profit differs from absorption costing whenever opening and closing stock levels differ.
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