Marginal v Absorption

Question 1

Show the differences between marginal and absorption costing (3 steps)

Answer 1

1. Statement
2. Explanation
3. Show w/ example

Question 2

Statement

Answer 2

There is a difference in profit bc closing stock is valued differently. Cl. stock under marginal costing is valued lower than under absorption costing.

Question 3

Explanation

Answer 3

When costing a product, marginal costing does not include fixed costs whereas in absorption costing the fixed costs are included.

Question 4

Show w/ example

Answer 4

Give absorption costings cl.stock and production cost.
Give marginal costings cl. stock and production cost.
Cl .stock- A.C.-M.C.=x Profit-A.C.-M.C.=x

Question 5

Which method should be used for accounting purposes and why?

Answer 5

Absorption costing. It agrees w/ standard accounting practice and concepts and matches costs w/ revenues.