Cost Accounting

Marginal Costing and Absorption Costing difference

The marginal costing is a technique of an accounting which may be defined as, “the ascertainment of cost by differentiating between fixed cost and variable cost of marginal cost and of the effect on profits of changes in the volume of the type of output”.

marginal costing and absorption costing

Marginal costing distinguishes between fixed costs and variable costs as conventionally classified. The marginal cost of a product is its variable cost.

Under marginal costing variable cost is charged as the cost of production and valuation of stock of work-in-progress or finished goods is done on the basis of variable cost. The following are the elements of marginal costing are such

The following are the elements of marginal costing are such

  • All elements of costs are classified into fixed and variable cost.
  • profits are calculated by deducting the fixed cost from the contribution.
  • This technique is used for cost control and decision-making.
  •  Profitability of various levels of activity is determined by cost- volume- profit analysis.

Difference with Absorption Costing

The difference between marginal costing and absorption costing

Marginal costing Absorption costing
Under this method, only variable costs are charged to production.Under this method, both costs fixed as well as variable costs are recovered from production.
The valuation of inventory (including work-in-progress and finished stock) is done on the basis of total variable cost only.The valuation of inventory (including working in progress and finished stock) done on the basis of fixed cost as well as variable cost.
Marginal costing is used for short term decision.Absorption costing is used for long term decisions.
Marginal costing focuses its attention on selling and pricing aspects.Absorption costing focuses its attention on production, operation or process.

Show More
0 0 votes
Article Rating
Subscribe
Notify of
0 Comments
Inline Feedbacks
View all comments
Back to top button
0
Would love your thoughts, please comment.x
()
x

Adblock Detected

Please disable the ad blocker to enjoy the contents on our blog.