ACCA MA · Chapter 7 · Question 6 of 11
Which of the following is an argument in favour of marginal costing?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: D) Profit is not affected by changes in inventory levels, because fixed production overheads are not carried forward in inventory
Explanation
Under marginal costing, fixed production overheads are written off in the period they are incurred, so managers cannot raise reported profit simply by building up inventory. IAS 2 requires absorption costing for external reporting. Which method reports the higher profit depends on whether inventory rises or falls.
More Absorption and marginal costing MCQs
- Q8If there is no opening or closing inventory in a period, how does absorption costing profit compare with marginal costing profit?
- Q9A company produced 8,000 units and sold 7,000 units in its first period. Variable production cost is $14 per unit, and fixed production…
- Q10How are fixed production overheads treated under marginal costing?
- Q11In a period, a company produced 10,000 units. Profit under absorption costing was $45,000 and profit under marginal costing was $51,000…
- Q1Under marginal costing, how is finished goods inventory valued?