Example of stock valuation in Marginal Costing

Example of stock valuation in Marginal Costing

In below example we have explained how the closing inventory is deal in marginal costing. It is important to note that stock are valued at variable production cost in marginal costing where under absorption costing valuation is done at full production cost.

Sales Price	40 per unit
Direct Material	24 per unit
Direct Labor	6  per unit
Direct Expenses	4  per unit
Factory Rent	10,000
Heating Factory	10,000
Output produced and Sold	12,000 & 10,000 units

Calculated profit and stock valuation under Marginal Costing

Solution

This example can be solved by two methods

Method 1

1. Profit Calculation

	Units	Rate	Total
Sales	10,000	40	400,000
Less: Variable Cost	10,000	(24+6+4)=34	(340,000)
Contribution			60,000
Less: Fixed Cost		(10,000+10,000)	(20,000)
Profit			40,000

2. Stock Valuation

	Unit	Rate	Amount
Closing Stock	2000 units	34	68,000

Method 2

 Profit Calculation

	Units	Rate	Total	Total
Sales	10,000	40		400,000
Production Cost	12,000	(24+6+4)=34	408,000
Less Closing Stock	2,000	34	(68,000)
Variable Production Cost				(340,000)
Contribution				60,000
Fixed Cost				(20,000)
Profit				40,000