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Marginal costing

Marginal costing assigns variable production costs to units and treats fixed production overhead as a period cost. A marginal profit statement deducts variable production and variable selling costs from revenue to calculate contribution, then deducts fixed costs. This highlights the effect of changes in activity under the model’s assumptions. The internal inventory cost differs from absorption costing; it is not a claim that external financial statements may ignore applicable inventory standards.

Worked example

Sales are $1,200, variable production cost of sales $640 and variable selling cost $80. Contribution is $480; fixed costs of $200 leave profit of $280.

Common mistake

Do not stop at contribution and label it profit; fixed costs still have to be covered.

Where it appears in your exams

QualificationExamRelationshipPeriod
ACCA MA Direct September 2026–June 2027
FIA FMA Direct September 2026–June 2027