Marginal & Absorption Costing
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Hi<BR><BR>I was wondering if anyone can give me a plain definition of the differences between marginal and absorption costing. I've been reading my books but none of it seems to be sinking in!<BR><BR>Thanks for your help<BR><BR>Vicky
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Marginal & Absorption Costing
The main thing to remember is that with Marginal costs the total fixed costs are charged against the period regardless of output. <BR><BR>Where as with absorbtion cotsting the fixed costs are abosrbed into the cost of each unit.<BR><BR>Therfore if you were to only make 2 unit in a period, with absorbtion costing your fixed costs charged would be less than if you had made 100 units. With Marginal costing it would not change.0 -
Marginal & Absorption Costing
Vicky, Marginal cost is the cost of producing one extra product.<BR>Therefore, marginal costing is charged when extra production is required plus existing product.<BR><BR>marginal cost = variable cost <BR>which is Direct materials + direct Labour + variable overheads.<BR>Fixed cost or overheads are not charged to marginal costing in other to get unit cost of the product.<BR><BR>Absorption costing - This is the total cost of producing a product. eg<BR>Direct materials + Direct labour + Fixed and variable overheads.<BR><BR>The differences between marginal and absorption costing is <BR>under marginal price of the product is low<BR>under absorption price of the product is higher because fixed cost is considered as part of the unit cost.0 -
Marginal & Absorption Costing
Absorption Costing- absorbs ALL direect and indirect factory costs into the cost of a unit (approved by SSAP 9)<BR>Marginal COsting- includes only the variable costs into the cost of a unit. NOT acceptable for financial accounts, but is useful for management accounts0