Under marginal costing, how is inventory valued per unit?

Under marginal costing, how is inventory valued per unit?

• A. At the full cost including fixed overhead
• B. At the selling price
• C. At the variable production cost per unit
• D. At the fixed cost per unit

Answer: (C)

Under marginal costing, inventory is valued using only the costs that vary with production. The fixed manufacturing overhead is treated as a period cost and is not included in the value of inventory. So the per-unit value reflects the variable production costs—direct materials, direct labour, and variable overhead. For example, if these variable costs total $6 per unit, the inventory value per unit is $6. The selling price isn’t used in inventory valuation, and fixed costs per unit aren’t included in inventory under this method.

Under marginal costing, inventory is valued using only the costs that vary with production. The fixed manufacturing overhead is treated as a period cost and is not included in the value of inventory. So the per-unit value reflects the variable production costs—direct materials, direct labour, and variable overhead. For example, if these variable costs total $6 per unit, the inventory value per unit is $6. The selling price isn’t used in inventory valuation, and fixed costs per unit aren’t included in inventory under this method.