Accounting and Its Tools

MANAGEMENT
ACCOUNTING AND ITS
TOOLS

TABLE OF CONTENTS
TASK 2............................................................................................................................................1
Part 1............................................................................................................................................1
Part 2............................................................................................................................................4
REFERENCES................................................................................................................................8

TASK 2
Part 1
Marginal Costing
Marginal Costing Refers to costing technique where the variable cost are charged to the
cost units & fixed costs that are attributable to relevant period are written off against contribution
for that period. It is ascertainment of the marginal costs and effects on profits of the change in
volume and output type through differentiation between fixed and variable costs. In this
technique cost are classified separately as variable and fixed cost (Eckardt, Selen and Wynder,
2015). Marginal costing concept is based over cost behaviours varying with volume of outputs .
It is also called variable costing as it includes variable costs only and per unit costs are
ascertained on the basis of variable costs (Marginal Costing, 2019).
Absorption Costing
Absorption Costing is also called full costing refers to conventional technique for
ascertaining cost. In this practice all costs both fixed and variable are charged to products,
processes and operations. This technique is widely used for ascertaining costs (LIU and PAN,
2018). This technique of costing of involves direct costs and overhead cost that are absorbed on
suitable basis. In this techniques of costing per unit cost remain constant only when output level
remains constant. When the output level changes per unit cost of products also changes due to
inclusion of fixed costs that remain constant . Absorption costing is much useful in cases when
company is manufacturing only one product and no inventory is there and recovery rate of
overhead is is based over normal capacity rather than actual activity (Lima and Moraes Filho,
2016).
Main benefit of absorption costing is it complies with GAAP & track the profits much
accurately than the variable costing (Absorption Costing, 2019). It includes all the production
cost, unlike the variable costing that considers only variable costing.
Cost card using Marginal costing
Particulars Cost per unit
Direct Material 1.375
1