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Predetermined absorption rate is used in absorption costing because we are unable to know the actual cost of some overheads until the end of the period but production is continuous. As we know, overheads are divided into variable and fixed overheads so is it mean that we will have two predetermined rate established, one for variable and the other for fixed overheads?
Next, why marginal costing does not use predetermined rate? marginal costing do take variable overhead into account and we are unable to know the amount of variable overhead that will be charged at the end of one period also.
Both marginal and absorption costing use a pre-determined rate based on the budgeted figures.
Marginal costing uses the variable cost per unit whereas absorption costing also includes the absorbed fixed production cost per unit.
Have you watched my free lectures on this?
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