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I have maybe a silly question, but i have seen 2 different calculation in my book for cost of sales (full absorption cost and marginal cost)
In full absortion cost, the Variable cost was calculated over the UNITS SOLD. But in marginal cost, over the UNITS PRODUCED
Is this difference because we are calculating full and then marginal? is a mistake in the book? Going mad with this silly thing
THANKS IN ADVANCE!
Hello, Thank you for your question.
The difference between absorption and marginal costing is the treatment of overheads..
The difference when to calculate absorption costing over units sold (rather than over goods produced) is when we are finding the costs of goods SOLD on the income statement (excuse the capital letters we have no bold or underline function!).
When we calculate the full product cost per unit under absorption costing then we share the total overhead cost over all units PRODUCED in the period.
For marginal costing – the costs will just be direct materials and direct labour & other variable costs (variable overheads) and the same unit value will arise whether amounts are sold or produced because the direct costs equal variable costs only.
Hope that helps
other variable costs (variable overheads), does this have to include selling and distribution cost?
Yes if the selling & distribution costs are truly variable in behaviour – then they can be included in variable overheads.