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Hi,
In marginal costing statement of profit or loss, what is the reason we need to separate the variable costs when we are calculating and preparing the statement?
Thank you in advance.
Just to be able to show the contribution separately from the fixed costs.
(Although in Paper MA you cannot be required to actually produce a statement, and there is no rule regarding the layout anyway other than the fact that we need to show the contribution separately from the fixed cost, and that with marginal costing inventories are valued at the marginal cost.)
I think I didn’t explain my question clearly.
I meant to ask:Eg:
Sales
Cost of sales:
Opening inventory
Variable cost of production
(-)Closing inventoryLess: Other variable costs *(Note1)
ContributionLess: Fixed costs
Profit/(Loss)Note 1: What is the reason of separating the variable distribution and administration costs from the variable costs of production? Can’t we just add or total both of them together and save the hassles of separating them?
It is because inventories are only ever valued at the production cost. If it is marginal costing then they are valued at the variable production cost.
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