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different method in valuing the cost of inventory. marginal costing concern more on the cost behaviour where as absorption costing concern on the cost function classification.
in the inventory valuation: Marginal costing valued inventory at marginal cost i.e. variable cost. Absorption costing valued inventory at full cost i.e. variable cost plus fixed cost.
in preparing income statement: marginal costing differentiate the items into variable and fixed element. Sales – variable cost of sales = contribution – fixed cost = profit. Absorption costing classify cost into function: sales – cost of sales = gross profit add other trading income – expenses (admin exp, selling expenses, distribution exp etc) = net profit.Note: please correct me if there is mistake somewhere in the answer.
Trea is correct ..marginal costing more realistic than absorption as absorption costing is based on estimation as we hv to calculate absorption rate for fix foh..busines often uses marginal costing in decision making technique
I have tried to download the notes but I ddnt get them because its like they have virus when I try to open the file after downloading it says the format is unable to be open.what can I do because I really need this information since I am a new student in CAT introduction programme
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