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Hi John, when using marginal costing why did the change in variance not balance out like when doing absorption costing? When using marginal costing the sales volume variance changed by £6000 and the volume variance by £3000. Is the remaining £3000 because the closing inventory would be valued differently under marginal costing?
Yes. With absorption costing the inventory valuation includes fixed overheads, whereas with marginal costing the inventory valuation is based only on the marginal/variable costs.
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