Marginal Costing and Statement Evaluation

Steps:

• Define marginal costing: classifies costs as fixed or variable, charging only variable costs to products for contribution calculation.
• Assess statement 1: false, as contribution = sales revenue - variable costs, directly based on marginal costing.
• Assess statement 2: true, as it aids decisions like pricing and breakeven by highlighting variable cost impacts.
• Assess statement 3: false, as fixed costs are treated as period expenses, not absorbed into products, downplaying their role in inventory.

Why C is correct:

• Marginal costing excels in decision-making by using contribution margin (sales - variable costs) to evaluate profitability and options, per standard cost accounting principles.

Why the others are wrong:

• A includes false statement 1, misrepresenting contribution basis.
• B includes false statement 3, overlooking fixed costs' period treatment.
• D selects only false statement 3.

Final answer: C