Week 8 - Absorption and Variable/Marginal Costing I

Question 1

What is another word for variable in this situation?

Answer 1

Marginal

Question 2

What does variable costing say the product cost is?

Answer 2

total (production) variable cost
aka
direct materials + direct labour + variable manufacturing overhead

Question 3

What does variable costing say the period cost is?

Answer 3

all fixed costs (including production fixed costs)
aka
fixed manufacturing overhead + selling and admin expenses

Question 4

What does absorption costing say the product cost is?

Answer 4

total direct cost + a share of production overheads
aka
direct materials + direct labour + variable overhead + fixed overhead

Question 5

What does absorption costing say the period cost is?

Answer 5

all non-production fixed costs
aka
selling and admin expenses

Question 6

What is the idea of absorption costing?

Answer 6

The idea that variable costs are not the only costs and that you must take others into account

Question 7

Example of marginal/variable costing?

Answer 7

This type of costing would only consider the costs of driving my car on a 200 mile road trip as the £50 for petrol (e.g only variable costs) - things that change as a result of the trip

Question 8

Example of absorption costing?

Answer 8

Petrol for the car for the trip, as well as other monthly expenses such as car insurance and payment for the car

Question 9

Which type of costing is better for decision-making?

Answer 9

Variable/marginal