Decision And Control

Question 1

Under marginal costing how is contribution calculated

Answer 1

Selling price less variable costs

Question 2

What are the advantages of marginal costing, and there fore disadvantages of absorption costing

Answer 2

Simpler no under or over absorption
Suitable for short term decision making
Treats fixed costs as they behave
Profit is influenced by sales not production

Question 3

What are the disadvantages of marginal costing

Answer 3

Does not comply with IAS2 can’t use in year end statements
Fixed costs should not be ignored in the long term
All costs have to be split between fixed and variable