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
Labor Transactions (i) Wages Paid in cash (ii) Wages incurred like a) Direct labor or else b) Indirect labor  In the Financial Books  In

The following information pertains to Tudor Logistics Company: 200X Information: Sales                                      $4,875,000 Selling expense

Place a prepared slide of Giardia first under tlie low power and then under the high power of the microscope and observe tlie followilig characters. i) Bilaterally symmetrical

Keira Knightley Company buys a piece of equipment for $36,442 that will last for 7 years. The equipment will generate cash flows of $7,000 per year and will have no salvage value a

1. Suppose your company needs to raise $30 million and you want to issue 30-year bonds for this purpose. Assume the required return on your bond issue will be 8 percent, and you're

Determine the additional cash a company could obtain from its working capital accounts if it can improve its average collection period by three days and inventory turnover by 0.5 t

. Alice Company has received a special order from John. John wishes to buy 100 units of Alice's product at a price of $48. The regular price is $65. The unit cost informati

formula for economic order quantity

This question tested their knowledge of intended reporting but more importantly requisite them to apply their knowledge and consider the impact from the investors' perspective.

Under a contract with the provincial government, ChemLabs Inc. analyzes the chemical and bacterial composition of well water in various municipalities in the interior of British Co