Application of Accounting Techniques: Marginal & Absorption Costing

This presentation provides an understanding of the application of marginal and absorption costing methods for Conway Ltd. It differentiates between the two methods, highlighting that absorption costing doesn't distinguish between fixed and variable costs, while marginal costing treats them separately. The presentation includes calculations for cost per unit under both methods, followed by income statements prepared using each approach. The analysis demonstrates the calculation of net income using both absorption and marginal costing, ultimately revealing that Conway Ltd realizes the same profit under either method. The presentation concludes by emphasizing the insights gained into the different costing methods and their implications.

Task 2- application of range of management
accounting techniques
CONWAY LTD

Introduction
 This power point presentation is
prepared to gain the understanding
of the application of the marginal and
absorption costing method for the
Conway ltd. The net income or loss

APPROPRIATE TECHNIQUES
ABSORPTION COSTING: This is the method that
is used to derive the profits of the firm and this
method does not possesses any difference
between the fixed cost and variable cost.
MARGINAL COSTING: This statement includes
the rates of the variable cost and under this
method both kind of costs that is the fixed and
variable cost are being treated in a separate
manner.

COST PER UNIT FOR ABSORPTION
AND MARGINAL COSTING
Absorption costing
(cost per unit)
Marginal costing
(cost per unit)
Sales £15 £15
Material cost £4 £4
Labour cost £4 £4
Variable cost £2 £2
Fixed Production
Overheads
£ 1.25 -
Total £11.25 £10

INCOME STATEMENT (ABSORPTION COSTING)
SALES (40,000 units@ £15
per unit)
6,00,000
Less- VARIABLE COST
Material cost (40,000 units@
£ 4 per unit
160,000
Labour cost (40,000 units@ £
4 per unit
160,000
Variable cost (40,000 units@
£ 2 per unit
80,000 400,000
CONTRIBUTION 200,000
LESS- fixed cost
Manufacturing 50,000
Other Fixed cost 100,000 150,000
NET INCOME 500,000

INCOME STATEMENT (MARGINAL
COSTING

In Euro
Marginal costing profit
Add: Fixed cost in closing
inventory
Less: Fixed cost in opening
inventory
50,000
50,000
(50,000)
Absorption costing profit 50,000

CONCLUSION
It can be concluded that this presentation has
provided the deep insights for the different
methods of costing. This presentation has
provided the calculation of the net income using
absorption and marginal costing method and
with the application of both methods it has been
realised that the Conway ltd has realised the
same profit.

REFERENCES
 Eldenburg, L.G., Wolcott, S.K., Chen, L.H.
and Cook, G., 2016. Cost management:
Measuring, monitoring, and motivating
performance. Wiley Global Education
 Narasimhan, M.S., 2017. Absorption vs.
Marginal Costing
 Lanen, W., 2016. Fundamentals of cost
accounting. McGraw-Hill Higher Education.