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    • I show a profit statement in my lecture (but you cannot be asked to produce one in the exam).

      Also, the term “Statement of Profit or Loss” is only used in Financial Accounting, and in Financial Accounts we do not use marginal costing.

  2. hi sir, i have been studying with since very long now, and you are too good, honestly.anyway in this lecture you deducted the variable SP of 1 ,why not in absortion costing, you did that later in absortion costing but why not while calcuating the cost card. i hope you got my question

  3. A project requires an initial outlay of #2.8m With a life span of 5yrs.Depreciaton is at the rate of 20%.the cash profit from the project is expected to be N900,000 N970,000 N950,000 N830,000and N790,000 for years 1 to 5 respectively.the company cost of capital is 18%.what is the payback period of the project?

    • This question has nothing to do with marginal costing and I therefore do not know why you have posted it as a comment on a lecture about marginal costing!!!

      You should watch the lectures on investment appraisal where payback period is explained in detail.
      If you are still unclear after watching the lecture then ask in the Ask the Tutor Forum, and not as a comment on a lecture.

  4. hello sir,
    I have a question that I’m not able to solve…
    Q- Last month a manufacturing company’s profit was $2000, calculated using absorption costing principles. If marginal costing principles had been used , a loss of $3000 would have occurred . The company’s fixed production cost is $2 per unit. Sales last month were 10000 units. What was last month’s production (in units)?

    • In future, you must ask this kind of question in the Ask the Tutor Forum and not as a comment on a lecture.

      You will know from my lectures that the only difference ever between the marginal and absorption profits is the change in inventory multiplied by the fixed overheads per unit.

      The difference in the profits is $5,000 and the absorption profit is higher than the marginal profit, and therefore the inventory must have increased by 5,000/2 = 2,500 units.
      You know how many units they sold, and so you should now have no problem calculating how many units they produced.

  5. Hello Sir,

    what is a period cost?

    and what does it exactly mean when fixed cost are deducted as a period cost in the profit statement?

    Thank you

    • In marginal costing, the fixed overheads are charged in full in the period in which they were incurred – a period cost. In absorption costing, they are absorbed into the cost of production and are therefore charged when the units are sold – so not in the period in which incurred.

      • does that mean fixed overheads are charged much later when absorption costing is used than when marginal costing is used?

        Also, since the fixed cost is absorbed into the cost of production, does it mean the price charged for each unit sold will only be charing a proportion of the total fixed overheads?

      • The amount of fixed overheads charged using absorption costing depends on whether inventory is increasing or decreasing over the period (and therefore whether absorption or marginal profit is higher for the period). In the long term the profits will be the same overall.
        All this is explained in the lecture.

        I assume you are asking whether the cost charged includes a proportion of the fixed overheads (not the price we charge) in which case yes, as far as absorption costing is concerned. The fixed cost is absorbed in the cost card.

  7. Hi Tutor,
    Just one precision please.: is marginal costing the same as variable costing?
    I read some materials and saw some videos of variable costing and its process is quasi the same as you explain for marginal costing. Thus, are both alike?
    Kind regards.

  8. Hi Dear tutor, in your example, you deducted variable non-production overheads from cost of sales which are understandable due to following the formula.

    Sales——————————————————————————–x
    opening inventory at marginal costing–x
    marginal or variable production cost—-x
    closing stock at marginal costing——-(x)
    ——————————————————
    equal cost of sale—————————-x

    less variable production overheads—–(x)-my question here is that why sales units of 9000 taken multiplied by variable selling cost of $ 1 per unit, why production units of 11000 have not taken into account with variable selling cost of $ 1 per unit?because you took into consideration fixed production overhead for example 11000*2=22000 or 20000+2000=22000-this is understanble
    ——————————————————
    equal contribution—————————–x
    less fixed production overheads———-(x)
    fixed non-production overheads——(x)

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