Difference between Absorption Costing and Marginal Costing CS Executive

Key Differences Between Absorption Costing and Marginal Costing

Corporate and Management Accounting - CS Executive

The following are the major differences between Absorption Costing and Marginal Costing.

1. The costing method in which variable cost is apportioned exclusively, to the products is known as Marginal Costing. Absorption Costing is a costing system in which all the costs are absorbed and apportioned to products.
2. In Marginal Costing, Product related costs will include only variable cost while in the case of Absorption costing, fixed cost is also included in product-related cost apart from variable cost.
3. Marginal Costing divides overheads into two broad categories, i.e. Fixed Overhead and Variable Overhead. Look at the other term Absorption costing, which classifies overheads in the following three categories Production, Administration, and Selling & Distribution.
4. In marginal costing profit can be ascertained through the help of Profit Volume Ratio [(Contribution / Sales) * 100]. On the other hand, Net Profit shows the profit in case of Absorption Costing.
5. In Marginal Costing variances in the opening and closing, the stock will not influence the per-unit cost. Unlike Absorption Costing, where the variances between the stock at the beginning and the end will show its effect by increasing/decreasing per-unit cost.
6. In marginal costing, the cost data is presented to outline the total cost of each product. On the contrary, in absorption costing, the cost data is presented in the traditional way, the net profit of each product is ascertained after deducting fixed cost along with their variable cost.
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