In marginal costing inventory is valued at

In marginal costing inventory is valued at

• A. Full production cost
• B. Direct costs only
• C. Variable production costs only
• D. Variable costs plus fixed overhead

Answer: (B)

Under marginal costing, only the costs that vary with production are attached to inventory. Fixed production overhead is treated as a cost of the period and is expensed separately, not carried in stock. In this framing, the costs that are directly traceable to the product and vary with output are the ones included in inventory valuation. These are what the question refers to as direct costs. So, inventory is valued at the direct costs only, rather than including fixed overhead or the full production cost.

Under marginal costing, only the costs that vary with production are attached to inventory. Fixed production overhead is treated as a cost of the period and is expensed separately, not carried in stock. In this framing, the costs that are directly traceable to the product and vary with output are the ones included in inventory valuation. These are what the question refers to as direct costs. So, inventory is valued at the direct costs only, rather than including fixed overhead or the full production cost.