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Hi, Sir hope you are well. Sir, I wanted to ask you why the profits from Absorbtion and marginal costing are different. It seemed to to that all similar costs are being substracted from sales.
I. E – in Absorption costing – sales – ( Opening – closing + var. Cost of production + fixed over head absorbed)
while in Marginal cosfing – as opening, closing and var. Cost of production are same there but fixed costs are absorbed as total from contribution. While it is reduced in absorbtion and adjustment is made by over/under absorbtion.Only thing seemed different to me is, other variable costs substracted in marginal costing methord. But isn’t the absorbtion costing methord values all the cost incured?
Is it only the differnence of opening / closing inventories, as Marginal values inventory on variable production cost and absorbtion takes all production costs in account?
I want to clear the topic thats why asking this question?
Yes – the only difference ever between the marginal absorption profits is because of the inventory values. Absorption costing values inventory including fixed production costs whereas marginal costing does not include fixed production costs.
I do explain this in my free lectures on absorption and marginal costing (questions using the above statement are very common in the exam). The lectures are a complete free course for Paper MA and cover everything needed to be able to pass the exam well.
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