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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 . 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. 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. 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. In marginal costing profit can be ascertained through the help of Profit Volume Ratio [(Contribution / Sal