Week 20 - Absorption Marginal Costing

Question 1

Marginal costing

Answer 1

Only assigns variable costs to product costs

Question 2

How marginal costing changes income statement presentation

Answer 2

Cost of Goods Sold becomes -> Variable costs

Gross Profit -> Contribution

Operating expenses -> Fixed Costs

Question 3

Pros of absorption costing vs Marginal costing
3

Answer 3

Recognises importance of Fixed Manufacturing Overhead in production costs

Conforms to international financial reporting standards (marginal costing doesn’t)

More realistic view of seasonal businesses as fictitious losses when production is built outside of sales seasons are avoided (marginal costing doesn’t

Question 4

Pros of Marginal costing vs absorption costing
2

Answer 4

Profit for period is not affected by volatility in inventory level

Variable costs are easily identifiable