Comparison between marginal and absorption costing, Cost Accounting

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.

Posted Date: 2/7/2013 12:13:54 AM | Location : United States







Related Discussions:- Comparison between marginal and absorption costing, Assignment Help, Ask Question on Comparison between marginal and absorption costing, Get Answer, Expert's Help, Comparison between marginal and absorption costing Discussions

Write discussion on Comparison between marginal and absorption costing
Your posts are moderated
Related Questions
responsibility of director of finance and logistics

Why is it important for financial statements and other external reports to be based on generally accepted accounting principles?

Wages Department It is accountable for the preparation of the payroll and the payment of wages. The routine will need: a) Analysis of clock cards and verify of overtime aut

Series Arithmetic Mean Standard Deviation   Small-company stocks 15.9  % 32.8  %   Large-company

when one firm purchase other and take over its all assets.balance sheet of absorbed firm shows goodwill,should we goodwill as well?

what is a cost sheet? what are its advantages?

Effects of differential cost analysis in decision making

HOW DOES IDLE CAPACITY EFFECT COST BEHAVIOR PATTERNS AND FACTORY OVERHEAD METHODS?

KIW Ltd currently orders Material B in batches of 2,500 kgs. Material B is consumed at a steady, known rate over the company's planning horizon of one year. The current usage is 40

Classification of Labour Costs This can be classified into like: a) Indirect or Direct cost b) Variable or Fixed cost c) Non controllable and controllable cost a)