ICAEW BIP · Chapter 2 · Question 8 of 12
Which of the following is an argument in favour of using marginal costing for internal reporting?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: D) Profit cannot be increased simply by producing more units for inventory
Explanation
Under marginal costing, fixed production overheads are written off in full in the period they are incurred, so building up inventory cannot defer them and increase profit. The other statements are arguments for absorption costing: IAS 2 requires inventory to include production overheads, absorption costing carries fixed overheads forward, and it provides a full unit cost.
More Overheads, absorption and marginal costing MCQs
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