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Is it correct to say that fixed cost although remain fixed but in Absorption costing we take FC in budgeting but with Marginal costing we don’t take FC?
Is it also correct that flex means to revise or adjust the changes in the budgeting?
We budget the fixed costs whatever method of costing is being used if we are budgeted the profit.
With marginal costing we budget the contribution and then subtract the fixed costs so as to get the budgeted profit.
With absorption costing we budget the profit directly.
The most likely relevance of the distinction for Paper PM is in variance analysis. If using marginal costing we take the budgeted contribution, adjust by the variances so as to get the actual contribution, and then subtract the fixed overheads to get the actual profit.
With absorption costing we take the budgeted profit and adjust by the variances so as to get the actual profit.
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