DIFFERENCE BETWEEN MARGINAL AND ABSORPTION COSTING:

---------|MARGINAL|
---------Contribution per unit is
constant unlike profit per unit
which varies with changes in
sales volumes.
-----------------------There is no under or over
absorption of overheads
(and hence no adjustment is
required in the income
statement).
-----------------------Fixed costs are a period
cost and are charged in full
to the period under
consideration.
--------------------------Marginal costing is useful in
the decision making
process.
-------------------------IT IS CONCENRED ON V.C
-----------------------It is simple to operate.
------------------------MARGINAL COSTING PROVIDES BETTER MANAGEMENT INFORMATION.
-----------------------------------------------------The main disadvantages of marginal costing are that closing inventory
is not valued in accordance with SSAP 9 principles and that fixed
production overheads are not shared out between units of production,
but written off in full instead.
----------------------------------------------------Closing inventories are valued at marginal
production cost
--------------------------------------------------Fixed costs are period costs
--------------------------IT APPLIES ACCRUAL ON ONLY V.C
---------------------------Cost of sales does not include a share of fixed
overheads
------------------ABSORPTION COSTING:
------------------Absorption costing includes an
element of fixed overheads in
inventory values
-------------------------Analysing under/over
absorption of overheads is a

useful exercise in controlling

costs of an organisation
---------------------------In small organisations,
absorbing overheads into the
costs of products is the best
way of estimating job costs
and profits on jobs.
------------------------The main disadvantageof absorption costing are that it is more
complex to operate than marginal costing and it does not provide any
useful information for decision making (like marginal costing does).
--------------------------------------------------Closing inventories are valued at full production
cost.
-------------------------------------------------ABSORPTION COSTING PROVIDES BETTER FINANCIAL INFORMATION.
-----------------------------------------------------IT IS CONCENRED V.C + F.C
-----------------------------------------------------IT APPLIES ACCRUAL ON V.C + F.C
----------------------------------------------------Fixed costs are absorbed into unit costs
----------------------------------------------------Cost of sales does include a share of fixed overheads.
-----------------------------------------------------