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

Prepare a preliminary cost benefit analysis, Managers need financial inform...

Managers need financial information to help them make decisions, communicate important information about their organization, and demonstrate fiscal responsibility to stakeholders.

Find the fixed cost, A firm's fixed costs for 0 units of output and its ave...

A firm's fixed costs for 0 units of output and its average total cost of producing different output levels are summarized in the table below. Complete the table to find the fixed c

Compute the internal rate of return, ABC bond is a 20-year bond with face v...

ABC bond is a 20-year bond with face value $1000. The coupon payment is $25 per 6 months. The semi-annual yield is 4%. Use the PV function in Excel (or equivalent) to Önd the price

Calculate the receivable turnover ratio, Presented here is the basic financ...

Presented here is the basic financial information from the 2009 annual reports of Intel and Advanced Micro Devces (AMD), the two primary manufacturers of silicon chips for personal

Differential costing, DIFFERENTIAL COSTING Marginal costing is often co...

DIFFERENTIAL COSTING Marginal costing is often confused with differential costing. The word 'DIFFERENTIAL COSTING' means 'a technique used in the preparation of adhoc informati

Wages and salaries, Given the information that follows, prepare a cash budg...

Given the information that follows, prepare a cash budget for the XYZ Store for the first six months of 2010. All prices and costs remain constant. Sales are 90% for cre

Disadvantages of standard costing, Disadvantages of Standard Costing ...

Disadvantages of Standard Costing 1. The system of standard costing is very expensive to install : A lot of money is spent in studying output requirements in terms of materia

Calculate total revenue-marginal revenue-marginal cost, In the beach city o...

In the beach city of Santa Barbara, California, there are seven bathing suit stores, each with the same schedule of costs and each facing an identical demand curve. Swim N Style is

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