Under marginal costing, which costs are treated as period costs rather than inventory costs?

Under marginal costing, which costs are treated as period costs rather than inventory costs?

• A. Variable production costs
• B. Fixed overheads
• C. Direct materials
• D. Variable selling costs

Answer: (B)

In marginal costing, inventory is valued using only variable production costs; fixed production overheads are not included in the inventory value and are charged as expenses in the period they arise. That’s why fixed overheads are treated as period costs. Direct materials and other variable production costs are part of what goes into inventory, so they aren’t period costs. Selling costs, whether variable or fixed, aren’t inventoried either, but the clearest example of a cost that becomes a period cost under this approach is the fixed overhead associated with production.

In marginal costing, inventory is valued using only variable production costs; fixed production overheads are not included in the inventory value and are charged as expenses in the period they arise. That’s why fixed overheads are treated as period costs. Direct materials and other variable production costs are part of what goes into inventory, so they aren’t period costs. Selling costs, whether variable or fixed, aren’t inventoried either, but the clearest example of a cost that becomes a period cost under this approach is the fixed overhead associated with production.