Marginal costing Flashcards
What is marginal costing?
It is an accounting system in which variable costs are charged to cost units and fixed costs of the period are written off in full against the contribution.
Does marginal costing comply with IAS 2?
No, IAS 2 states that a fair amount of fixed production overheads should be included in the inventory valuation.
Advantages of using marginal costing?
*It is simple and easy to use.
*Fixed cost are treated in accordance with their nature, that is as period cost.
*Marginal costing is useful in the decision making process.
Disadvantage of using marginal costing?
*Does not comply with IAS2.
*There is a danger that products will continue to be sold at a marginal contribution which fails to cover fixed costs.
*Seasonal variation in the year can cause unnecessary profit variances.
