Marginal vs. Absorption Cost Flashcards
What is marginal costing?
Marginal costing is a costing technique that only considers variable costs for decision-making and product pricing.
True or False: Absorption costing includes both fixed and variable manufacturing costs.
True
In marginal costing, which costs are treated as period costs?
Fixed manufacturing costs are treated as period costs in marginal costing.
What is the primary focus of absorption costing?
The primary focus of absorption costing is to allocate all manufacturing costs to the product.
Fill in the blank: Under absorption costing, __________ are included in the cost of goods sold.
both fixed and variable manufacturing costs
What is a key advantage of marginal costing?
A key advantage of marginal costing is its simplicity and usefulness in decision-making.
Which costing method is generally preferred for external financial reporting?
Absorption costing is generally preferred for external financial reporting.
True or False: Marginal costing can lead to misleading profit figures if inventory levels change.
True
What is the contribution margin?
The contribution margin is the difference between sales revenue and variable costs.
In absorption costing, how are fixed manufacturing costs treated?
Fixed manufacturing costs are allocated to each unit produced and included in inventory valuation.
What is the breakeven point?
The breakeven point is the level of sales at which total revenues equal total costs, resulting in zero profit.
Fill in the blank: The formula for calculating contribution margin is __________.
Sales Revenue - Variable Costs
What is a disadvantage of absorption costing?
A disadvantage of absorption costing is that it can obscure the impact of fixed costs on profitability.
True or False: Marginal costing is useful for short-term decision-making.
True
What is the formula for calculating total cost under absorption costing?
Total Cost = Variable Costs + Fixed Costs
Which costing method can provide better insights for pricing decisions?
Marginal costing can provide better insights for pricing decisions.
Fill in the blank: Under marginal costing, fixed costs are considered __________.
period costs
What is the main purpose of using marginal costing in decision-making?
The main purpose is to understand the impact of variable costs on profitability.
True or False: Absorption costing can result in higher profits when production exceeds sales.
True
What does the term ‘variable costing’ refer to?
Variable costing refers to a costing method that includes only variable costs in product costs.
How does inventory valuation differ between marginal and absorption costing?
Under marginal costing, inventory includes only variable costs, while under absorption costing, it includes both fixed and variable costs.
Fill in the blank: The main difference between marginal costing and absorption costing is __________.
the treatment of fixed manufacturing costs
What is a common use of absorption costing in business?
Absorption costing is commonly used for financial reporting and inventory valuation.
True or False: Marginal costing can help in determining the optimal product mix.
True
