0
What is main distinguish between marginal costing and obsorption costing?
Wiki User
∙ 12y ago
Main difference between these to accounting system is the treatment of Fixed cost...
absorption costing absorb (include the fixed cost to unit prise on some reasonable basis)
marginal costing only include variable cost to unit cost (cost of sale) of a product and treat fixed cost as period cost (charge t profit and loss account)..
very basic example would be,,,
a person John made a chair with wood, some glue and few nails.. these material cost him $ 20 / chair
.. the rent he paid for the workshop is $ 50 a day(fixed cost, as he have to pay either he sale any chair or not),,,
so he want to sale it at least a chair @ 20+50= $ 70
another person Locke at his neighbor with same cost sold the chair for $ 40 only.. charging $20 for material and $ 20 as contribution..
so from whom you would buy?
obviously form Locke.because its cheaper....
but is Locke crazy.. who is going to pay his rent???
the answer is .. if he manage to sell 3 chairs per day which he can do easily because he is selling cheaper the the profit he earns would be as follows...
total contribution $ 20/chair * 5 = $ 100 (means gross profit after all material cost of 5 chairs)
rent per day = $ 50
------
he earned a profit of = $ 50 a day after paying all costs...
this is the simplest difference between marginal and absorption costing system
john is using absorption costing and Locke is using marginal costing...
if Locke sale 3 chairs then unit cost per chair would be
total rent 50
total chair manufactured 3
fixed cost per unit 50/3 = 16.67
now the total cost per unit is (VC 20 and FC 16.67) = 36.6
sale prise of 5 chair in competition 40*5 = 200
cost of 5 chair 36.6 * 5 = 183
-----------
profit 17
with same business and with same sales volume and costs...they reporting different profits
Wiki User
∙ 12y ago
Add your answer:
Earn +20 pts
Difference between absorption and marginal costing?
marginal costing is recommended by IAS and absorption costing is not recommended by IAS,marginal costing is used for internal purposes and absorption costing is ysed for external purposes,in marginal costing the fixed production overheads are not calculated as a product cost and in absorption costing the fixed prodution overheads are calculated as product cost.
Limitation and assumption of marginal costing?
assumption of marginal costing
When to use marginal costing?
Marginal costing is the method of costing for evaluating the changes in total cost due to change in number of units produced.
What are the uses of marginal costing and absorption costing?
to calculate the profit easilly
Is direct costing the same as variable costing?
Variable costing is called marginal costing while direct costing is separate concept.
Difference between absorption and marginal costing?
marginal costing is recommended by IAS and absorption costing is not recommended by IAS,marginal costing is used for internal purposes and absorption costing is ysed for external purposes,in marginal costing the fixed production overheads are not calculated as a product cost and in absorption costing the fixed prodution overheads are calculated as product cost.
Limitation and assumption of marginal costing?
assumption of marginal costing
Is the marginal costing called direct costing?
Yes marginal costing is also sometimes called direct costing.
When to use marginal costing?
Marginal costing is the method of costing for evaluating the changes in total cost due to change in number of units produced.
What are the uses of marginal costing and absorption costing?
to calculate the profit easilly
Is direct costing the same as variable costing?
Variable costing is called marginal costing while direct costing is separate concept.
Marginal costing and absorption costing which is favourable?
= http://wiki.answers.com/Q/Marginal_costing_and_absorption_costing_which_is_favourable" =
Limitations of marginal costing?
in marginal costing key factor and limitation factor is also available which may put limits on produduction unit and sales unit.
Differences between costing method and costing techniques?
Methods of Costing The cost of products or services is determined using several methods. The use of a given method is dictated by such factors as: the nature of cost units, the production process, the mode of cost accumulation, the duration of work etc. The following are the well established methods of costing a. Job / Batch costing b. Contract costing c. Process costing d. Service costing Techniques of Costing Irrespective of the type of costing method being applied there are various approaches that could be adopted. These are:  Full Absorption costing  Marginal costing  standard costing using  absorption costing  marginal costing
Marginal costing is useful in?
Marginal costing is one of the technique of costing and is usefull for the decision making process. As in decision making process decision are always made for the future activities and not for past activities so if exept marginal costing any other costing method for example absorption costing method is used then there is a chance of making wrong decisions as in future decision making past decision and past data is not relevent for decision making.
Distinguish between costing and cost accounting?
Cost accounting is the process of using alternative courses after collecting, analyzing, and summarizing data. Costing is what the price of something will be.
State the arguments for using marginal costing approach in routine accounting?
- The Marginal costing technique is appropriate for decision making as it highlights those costs (and revenues) which will change as a result of the decision under review being put into effect. - As fixed costs are mostly overheads, and, under marginal costing these are all treated as period costs and charged into the income statement therefore marginal costing avoids arbitrary allocation of overheads to units of output. - Reporting profit on a marginal costing basis will be more closely relates to changes in sales volume and are less affected by changes in inventory levels. - An understanding of the behavior of costs and the implications of contribution is vital for accountants and managers as the use of marginal costing for decision making is universal.
