Types of costing Flashcards
Advantages of Marginal costing
Advantages of Absorption costing
Disadvantages of Marginal Costing
Disadvantages of Absorption costing
assumes that all fixed costs are time related and that an item made should attract an increased share of production overheads simply because it took longer to make.
Marginal costing
uses the variable costs associated with the item being costed, to calculate the additional cost incurred when the item is made, or the service provided.
Absorption costing
calculates the production cost of an item by identifying the prime cost (total direct cost) of the item, and then absorbing (adding in) an appropriate share of the production fixed cost, to arrive at the absorption cost, or total production cost of the item.
Activity based costing
Advantage of activity based costing
More detailed so more likely to give accurate unit costs
Disadvantage of activity based costing
Can be very time consuming to implement and manage
