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Cost given is as follows:
Production costs fixed 255.70
production costts var 483.50selling costs fixed 124.80
selling costs var 75.60profit 60.40
Selling price …………… 1000.00
question: what is the inventory valuation under
a. absorption costing
b. marginal costing system
the answers in the bpp book are as follows:
a. absorption costing value of inventory: 255.7+483.5
b marginal costing value of inventory: 483.50
the answer for part b says: Selling costs are never included in inventory valuations. the valuation under marginal costing system is the variable production cost.
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I am confused because it is also said that ALL variable costs are taken in the MC method.
Can someone clarify this for me?
thanks in advance
I cannot comment on other content providers books!
However I would imagine that you are confusing two things.
The valuation of inventory only ever includes production costs (not selling costs) and if it is marginal costing then it is only variable production costs.
When looking at the contribution however, the definition of contribution is selling price less all variable costs (not just variable production costs).
They are two different things.
You can watch lectures on marginal and absorption costing is you go to the Paper F2 (FMA) page, and our lectures explain it properly 🙂
Sir, as always, thank you.
What wd be your answer to the above question?
Frankly. i am less worried about the publisher and more about the answer.
The answer you have typed is completely correct.
In both cases we only ever value inventory using production costs – any other costs are not relevant for the valuation of inventory.
If it is marginal costing, then it is just the variable production costs.
It is is absorption costing then it is all production costs (fixed and variable).The answer you have typed is completely correct.
In both cases we only ever value inventory using production costs – any other costs are not relevant for the valuation of inventory.
If it is marginal costing, then it is just the variable production costs.
It is is absorption costing then it is all production costs (fixed and variable).
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