Marginal Costing: Statement of Profit or Loss

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Marginal Costing: Statement of Profit or Loss

Cambrige AS and A Level Accounting Notes (9706)/ ZIMSECĀ  Advanced Accounting Level Notes: Marginal Costing: Statement of Profit or Loss

  • As has been outlined here there are differences between marginal costing and absorption costing
  • One such stark difference is in the format of statements of profit
  • Below is a proforma Statement of Profit using marginal costing

Marginal Costing Statement of Profit or Loss

$$
Salesxxxx
Less Cost of Sales:
Opening inventoryxx
Variable cost of productionxx
Less closing inventory

(xx)

(xxx)

xxx
Less Other variable costs

(xx)

Contributionxxx
Less Fixed Costs(xx)
Profit/(Loss)

xxx/(xxx)

  • It’s important to remember that both opening and closing inventory are valued at marginal (variable) cost under marginal costing
  • The fixed costs incurred are deducted from contribution earned in order to determine the profit for the period
  • Only the production variable costs are to be included in the cost of sales and valuation of inventory
  • If there are variable non-production costs e.g. selling costs these would be deducted before contribution but are not to be included in cost of sales

To access more topics go the ZIMSEC Advanced Level Accounting page

To access more topics go to the Cambridge AS/A level page

By |2018-09-04T07:22:46+00:00August 23rd, 2018|Cambridge AS A Level Accounting, Notes, ZIMSEC A Level Accounting|Comments Off on Marginal Costing: Statement of Profit or Loss

About the Author:

He holds an Honours in Accountancy degree from the University of Zimbabwe. He is passionate about technology and its practical application in today's world.
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