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Methods

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA PM Exams › Methods

  • This topic has 1 reply, 2 voices, and was last updated 1 year ago by John Moffat.
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  • Author
    Posts
  • December 20, 2021 at 5:09 pm #644623
    maria2020
    Member
    • Topics: 18
    • Replies: 12
    • ☆

    In the absorption costing we include all the costs including variable and fixed costs in the production costs like this:

    Sales
    less: costs
    Direct material
    Direct labour
    Variable overheads
    Fixed overheads
    Total production cost
    Profit

    In the marginal costing we include all the marginal costs in the production costs but not fixed costs like this.

    Sales
    less: costs
    Direct material
    Direct labour
    Variable overheads
    Total production cost
    Fixed overheads
    Profit

    In both methods, fixed costs are included but the point is that whether we should include them in the production costs or not. But what is the point of these methods because the fixed costs are deducted anyways?

    December 21, 2021 at 7:44 am #644638
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 51532
    • ☆☆☆☆☆

    It changes the way that the inventories are valued.

    I do explain the reasons for some businesses choosing to use absorption costing and others choosing to use marginal costing in my free lectures 🙂

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    Posts
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