Marginal Costing

Question 1

Contribution

Answer 1

Contribution = sales - variable cost of sales

Question 2

Period costs

Answer 2

Period costs = costs relating to a time period rather than to the output of products

Question 3

Product costs

Answer 3

Product costs = costs of a product made up of its cost elements

Question 4

LR profit for marginal vs absorption?

Answer 4

The same in the LR - different accounting conventions merely affect the profit of individual accounting periods

Question 5

Absorption vs marginal

Answer 5

Absorption the full cost of production of units sold are charged as cos. Only other entries over/under- absorption of overheads

Marginal - only variable cost per unit is charged as part of cos - when deducted from sales the resulting figure is contribution - towards fixed costs and any profit. Fixed overheads are charged to spl as a period cost

Question 6

Why marginal?

Answer 6

Decision making process

Contribution let’s you see what would change as a result of a decision. As fixed costs remain constant

Question 7

Why absorption?

Answer 7

Better for financial accounting (valuation of inventories - IAS2) also for interstate accounting systems
BUT can manipulate profit for a period by production a lot of product. Lr no difference though