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
Kenner company produces two products: SR200 and TX500. Budged sales for four months are as follows; SR200 TX500 May 8,000 20,000 June 13,000 32,000 July 11,000 39,000 August 18,000

Ass ume that during April, the job cost sheet for Job 206 showed the following:                                                          Dept. A                   Dept. B M

These balances for a company x Raw materials $40,000 Work in process $30,000 Finished goods $60,000 for the current year the company estimated that it would work 150.000 mach

A company is evaluating the following lease or buy option. A four year lease with annual payments of $25,000 payable at the beginning of the year.The tax shield is available at

XYZ Corporation recieves $100,000 from investors for issuing them shares of its stock. XYZ's journal entry to record this transaction would include a a debit to investment b

Bubba's Crawfish Processing Company uses a traditional overhead allocation based on direct labor hours. For the current year, overhead is estimated at $1,150,000, and direct labor

how do we prepare an overhead analysis sheet when the data given is already apportioned


I need project help in Government and nonprofit accounting, can you help me in look out this problems?