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What does it mean that in marginal costing fixed cost is treated as period cost so it is charged in full to the P&L accounting period in which they incurred?
However, in absorption costing fixed cost is treated as production cost so it is charged as cost of goods sold?
Secondly, I want to ask that:
Raw material / WIP are both part of total production costs but they will not be in opening inventory and closing inventory is actually Finished goods.I am confused here!
With marginal costing the whole of the fixed overhead for the period is charged in that period.
With absorption costing the fixed overheads are absorbed into the units produced, and only those sold in the period are charged in the period. The rest is carried forward in the value of the closing inventory.
I do explain this in my lectures.
Inventories of raw materials and WIP will be accounted for in calculating the cost of materials used in production. Again, I illustrate this in my lectures on budgeting.
The lectures are a complete free course for Paper MA and cover everything needed to be able to pass the exam well.
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