Cost accounting
This query is : Resolved
Vipin Nair
(Querist)
12 December 2013
What is the difference between "Marginal Costing" and "Absorption Costing"?
CA Vijeta Verma
(Expert)
14 December 2013
See,in marginal costing "Fixed cost" are shown as a periodical cost whereas in absorption costing "recovered fixed cost is shown"depending upon the recovery rate on each product.
Next,In marginal costing major deciding factor is contribution whereas in absorption costing we consider profits.
In marginal cost ,we show closing stock at its varioable cost whereas in absorption costing it is shown at total cost(complete recovery).
While absorption costing is a traditional method of cost computation ,marginal costing is modern costing approach ,more reliable for decision making situations.As it considers fixed cost as a sunk cost ,which it true as well.
Next,In marginal costing major deciding factor is contribution whereas in absorption costing we consider profits.
In marginal cost ,we show closing stock at its varioable cost whereas in absorption costing it is shown at total cost(complete recovery).
While absorption costing is a traditional method of cost computation ,marginal costing is modern costing approach ,more reliable for decision making situations.As it considers fixed cost as a sunk cost ,which it true as well.
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