Cambrige AS and A Level Accounting Notes (9706)/ ZIMSEC Advanced Accounting Level Notes: Marginal Costing vs Absorption Costing
- Having introduced you to both absorption costing and marginal costing
- It is time to look at some of the differences between the two
- In discussing marginal costing we have already pointed out the differences between it and marginal costing
- Now we will create a more complete summary of these differences
| Absorption Costing | Marginal Costing |
| A costing technique that assumes both fixed costs and variable costs as product costs | A costing technique that assumes only variable costs as product costs |
| Both fixed costs and variable costs are considered in the product cost | Only variable costs are considered as product cost and fixed costs are considered to be period costs |
| Inventories include both variable costs and a "fair" share of fixed overheads | Inventories only include variable costs |
| Emphasis is on making sure overheads are recovered | Emphasis is calculating the contribution of each unit |
| The cost of each next unit includes changes the cost of each unit | The cost of producing each unit is fixed |
| Costs are classified as Production, Administration and Selling and Distribution | Costs are mainly just classified as Fixed and Variable |
| Since fixed costs are also considered profits appear lower under absorption costing | Profit is measured using the Profit Volume Ratio |
| Considers the cost of each unit/every unit | Considers to cost of producing the next unit/each extra unit |
| Highlights the contribution per unit | Highlights the net profit per unit |
To access more topics go the ZIMSEC Advanced Level Accounting page
To access more topics go to the Cambridge AS/A level page
