Marginal costing and Absorption costing Flashcards
1
Q
what is marginal costing?
A
the extra cost arising as a result of producing one more unit
- each unit is valued at prime cost plus variable production overheads
2
Q
what does contribution go towards
A
towards fixed costs and then towards profit
3
Q
how to calculate contribution per unit
A
selling price per unit - all unit variable costs
4
Q
total contribution…
A
CPU x units sold
5
Q
profit reconciliation..
A
marginal costing profit - (closing inventory-opening inventory x fixed OAR) = absorption costing profit
6
Q
closing inventory > opening inventory
A
TAC > MC
7
Q
closing inventory < opening inventory
A
TAC < MC
8
Q
closing inventory = opening inventory
A
TAC = MC
9
Q
Advantages - Absorption costing
A
- Fixed production costs can be a significant part of total costs
- This method is requires for financial reporting purposes
- Under/over absorption can identify inefficient utilisation
10
Q
Advantages - Marginal Costing
A
- Simple
- Avoids arbitrary allocation and absorption of overheads
- Better for short-term decision making
- Profits only rise if sales rise (not production)
