Comparison between marginal and absorption costing, Cost Accounting

Assignment Help:

Comparison between Marginal Costing and Absorption Costing

There are accountants who favour all costing method.

Arguments in favour about absorption costing are specified as:

  1. To make output fixed production costs are incurred; consequently it is 'fair' to charge all output along with a share of these costs.
  2. Closing stock values via involving a share of fixed production overhead will be valued on the principle required for the financial accounting valuation of stocks via Standard accounting practice' statement on stocks and long-term contracts as SSAP 9.
  3. A problem along with calculating the contribution of various products made via a company is such it may not be clear whether the contribution earned via each product is sufficient to cover fixed costs, whereas via charging fixed overhead to a product it is probable to ascertain if it is profitable or not.

Arguments in favour about marginal costing are specified as:

  1. It is easy to operate
  2. There are no apportionments that are frequently done on the arbitrary basis, of fixed costs. Many costs, as like the managing director's salary, are indivisible along with nature.
  3. Fixed costs will be the similar regardless of the volume of output, since they are period costs. It makes as hence, to charge them in full like a cost to the period.
  4. The cost to make an extra unit is the variable production cost. It is realistic to value closing stock items at its directly attributable cost.
  5. Beneath or over absorption of overheads is avoided.
  6. Marginal costing information can be required for decision-making however absorption costing information is not appropriate for decision-making.
  7. Fixed costs as like depreciation, rent and salaries concern to a period of time and must be charged against the revenues of the period whether they are incurred.

Obviously, the choice of method does not have to be between marginal costing and absorption costing. Now we looked at ABC like an alternative to absorption costing.  Attributable contribution costing is one more alternative. This includes attributing certain fixed costs to the activities that cause them and then utilizing marginal costing to compute a contribution for every activity, the surplus of contribution over attributable fixed costs being known like attributable contribution.


Related Discussions:- Comparison between marginal and absorption costing

Direct and indirect costs, Direct and Indirect costs Recall such direc...

Direct and Indirect costs Recall such direct costs are costs which can be traced particularly to the end product of the production procedure while indirect costs cannot be so

Determine the price of the bond , Andrew Industries is contemplating issuin...

Andrew Industries is contemplating issuing a 30-year bond with a coupon rate of 7% (annual coupon payments) and a face value of $1000. Andrew believes it can get a rating of A from

Compute the cost per unit, Fosson Furniture uses a process cost system to a...

Fosson Furniture uses a process cost system to account for its chair factory. Beginning inventory consisted of 5,000 units (100% complete as to material, 55% complete as to labor)

Organization of budgetary control, Organization of Budgetary Control B...

Organization of Budgetary Control Budgetary control ideally includes the given steps as: 1. The creation of budget centres. 2. The introduction of sufficient

calculate the percent interest rate and effective cost, 1. The following t...

1. The following three one-year "discount" loans are available toyou: Loan A: $120,000 at a 7 percent discount rate Loan B: $110,000 at a 6 percent discount rate Loan

Prepare a properly classified cash flow statement, Prepare a properly class...

Prepare a properly classified Cash Flow Statement for Sports Enterprises Ltd for the year ended 31st December 2011. Note that the Closing Cash at Bank Balance at 31st December 2011

Prepaid expenses, Expenses paid in previous of their use or consumption is ...

Expenses paid in previous of their use or consumption is termed as prepaid expenses. At the ending of the year, a portion of the payment keeps unconsumed and is treated like an ass

Profit and loss account, Both the parts, Profit and Loss Account and Tradin...

Both the parts, Profit and Loss Account and Trading Account of last account are interdependent upon each other. Gross Profit or loss plays a very important role in the calculation

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd