Cambrige AS and A Level Accounting Notes (9706)/ ZIMSEC 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
| $ | $ | |
| Sales | xxxx | |
| Less Cost of Sales: | ||
| Opening inventory | xx | |
| Variable cost of production | xx | |
| Less closing inventory | (xx) | |
(xxx) |
||
| xxx | ||
| Less Other variable costs | (xx) |
|
| Contribution | xxx | |
| 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
