marginal and absorption costing

System
System Posts: 100,534 🤖 Admin 🤖
edited June 18 in AAT student discussion
hi i am really panicking now, just read someones entry re things they have been told will be on exam and i dont know them!!<BR>please can someone explain diff between marginal and absorption costing? i cant really remember doing the marginal costing.

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  • System
    System Posts: 100,534 🤖 Admin 🤖
    marginal and absorption costing

    on marginal costing you dont include the fixed costs to your calculation just the variable and the fixed costs are charged as an expense to the p & l. <BR>i.e: variable o'head £240,000<BR> tot lab hours 150,000<BR><BR> o'head absorption rate 240,000/150,000 = £1.60 per labour hour.<BR><BR>Hope this helps and good luck
  • System
    System Posts: 100,534 🤖 Admin 🤖
    marginal and absorption costing

    Hi Lozza.<BR><BR>Think of this in terms of a P&L account.<BR><BR>Marginal: The contribution is the same as the Gross Profit "Margin" - the exspenses (overheads) are separate.<BR><BR>Absorption: The overheads are <b>absorbed</b> into the cost.<BR><BR>Hope this helps and all the best this afternoon.<BR><BR>Mike<BR>
  • System
    System Posts: 100,534 🤖 Admin 🤖
    marginal and absorption costing

    Marginal Costing is mainly used for internal decission making and Absorbtion costing is the correct method under SSAP 9.<BR><BR>With Marginal costing this calculates the cost of making one unit ie direct labour, direct materials the fixed costs are then deducted as period costs further down in the profit and loss account.<BR><BR>Absorbtion costing adds an amount to the cost of each unint to represent the fixed overheads incurred by that project. Remember the amount added to each unit is based upon estimates at the start of the period. If these estimates are then incorrect then we may have to under/over absorb.<BR><BR>This may help you<BR><BR>Sales Price = £10<BR>Varibale Costs = £6<BR>Fixed overheads = £3<BR><BR>Under marginal costing each unit of stock would be valued at £6.00<BR><BR>Under absorbtion costing the fixed element would be absobed so the unit would be valued at £6 + £3 = £9<BR><BR>Each method would effect profit differently<BR><BR>Hope this helps
  • System
    System Posts: 100,534 🤖 Admin 🤖
    marginal and absorption costing

    ok thanks think that helps.<BR>good luck everyone

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