Computation of Costs Under Absorption and Marginal Costing

Running head: MANAGERIAL ACCOUNTING
Managerial Accounting
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Author’s Note

1
MANAGERIAL ACCOUNTING
Table of Contents
Computation of Costs under Absorption and Marginal Costing.....................................................2
Different types of Planning tools in Budgetary Control..................................................................4
Application of planning tools used for budgetary control...............................................................4
Management Accounting System Adopted to Control the Problems..............................................8
Reference.......................................................................................................................................12

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MANAGERIAL ACCOUNTING
Computation of Costs under Absorption and Marginal Costing
In order to compute costs, most of the business uses a certain costing system which suits
the main needs of the organization. The costs of the business are considered after considering the
productions for the month of May and June and the same is considered to be 400 units and 500
units. The table which are presented below shows costing techniques which is followed by the
management for managing the materials, labour and overheads of the business. The treatment of
overheads of the business forms an important part of the total costs of the business. The
computation of the costs of the business under the methods of Absorption and Marginal Costing
is shown in the figure below:
Absorption Costing
Statement Showing Cost per unit under Absorption Costing
Particulars May June
€ €
Direct materials per unit 10 13
Direct labour per unit 6 9
Variable production overheads per unit 4 6
Fixed Overhead 10 8.0
Total Cost per unit of product 30 36.0
Profit and Loss Statement under Absorption Costing
Paticulars May June
€ €
Sales 20000 25000
Less: Cost of Good sold 12000 18000.0
Gross Profit 8000 7000.0
Fixed selling 4000 4000
Fixed Administration 1000 1000
Variable sales commission 1000 1250
Net Profit 2000 750.0
Figure 1: (Table Showing Computation of costs under Absorption Costing)
Source: (Created by the Author)

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MANAGERIAL ACCOUNTING
The above tables show the computation of costs under Absorption Costing techniques.
Absorption costing techniques considers the indirect costs of the business and thereby include
the same in the cost of the product. The above table shows the different factors of the costs
which are material cost, labour cost and overhead costs of the business. On the basis of the costs
which is computed, an estimate of sale price is estimated for computing the total sales of the
business. The above computation shows that is more for the month of May and as the number of
units increases so does the costs which is associated with the product.
Marginal Costing
Statement Showing Cost per unit under Marginal Costing
Particulars May June
€ €
Direct materials per unit 10 13
Direct labour per unit 6 9
Variable production overheads per unit 4 6
Total cost per unitt 20 28
Profit and Loss Statement under Marginal Costing
Paticulars May June
€ €
Sales 20000 25000
Less: Cost of Good Sold 8000 14000
12000 11000
Operating expenses
Fixed overhead 4000 4000
Fixed selling 4000 4000
Fixed Administration 1000 1000
Variable sales commission 1000 1250
Net Profit 2000 750
Figure 2: (Table Showing Computation of costs under Marginal Costing)
Source: (Created by the Author)