Costing................

Absorption costing is used in industrial practices.

At normal efficiency level standards costs are decided to control the costs.

To control the costs means; if at the end of the budget period the organisation finds that per unit cost is somewhat different than what was targeted, then they will find out the reasons thereof. With the help of different variances of standard costing; they will be in a position to see in which areas costs have increased. After identifying the increased areas; they again will focus on the costs why these have increased. After finding the reasons; they will take remedial actions so that costs will remain in control.

Marginal costing is used for decision making only. In general circumstances; with the help of marginal costing an organization would be in a position to see where costs are equal to revenue (break even point). Marginal costing is specially useful where spare production capacity is there.

Thank you sir.