Absorption Costing
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Marginal Costing
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It is known as full costing. Both fixed and variable are included to ascertain the cost.
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Only variable costs are included. Fixed costs are recovered from contribution.
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Different unit costs are obtained at different levels of output because of fixed expenses remaining the same.
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Marginal cost per unit remains same at different levels of output because variable expenses vary in the same proportion in which output varies.
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Difference between sales and total cost (marginal cost and fixed cost) is profit.
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Difference between sales and marginal cost is contribution and difference between contribution and fixed cost is profit or loss.
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The apportionment of fixed expenses on an arbitrary basis gives rise to over or under absorption of overheads.
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Products are charged only with variable cost, hence marginal costing does not lead to over or under absorption of fixed overheads.
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It affects managerial decisions in certain areas. E.g., whether to accept the export
order or not, whether to buy or manufacture, etc.
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It is very helpful in taking managerial decisions. It considers the additional cost involved, assuming fixed expenses to remain constant.
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