Management Accounting: Marginal vs. Absorption Costing Analysis

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Management Accounting
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Table of Contents
Part1.................................................................................................................................................3
Marginal costing..........................................................................................................................3
Abstract of balance sheet.........................................................................................................3
Absorption costing.......................................................................................................................5
Abstract of balance sheet.........................................................................................................5
Reconciliation statement..............................................................................................................6
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Part1
Marginal costing
Marginal costing is the costing is to charge to a unit of cost. It is describing the individual cost to
find the profit of the organisation. The marginal costing is on the fixed cost and variable cost of
the production.
Marginal costing Amount
Revenue 800000
Less:
Opening Inventory 0
(+) Production cost 630000
(-) Amount of closing inventory 70000 560000
Contribution profit 240000
Less:
Fixed production O.H. 100000
Gross income 140000
The marginal costing is the data driven by the above table that means there is no opening
inventory and then it has done the production and the difference amount is called the gross
income.
Abstract of a balance sheet
The balance sheet as per the marginal costing
Particular Amt.
Assets
current assets 140000
inventory 70000
210000
Liabilities 70000
Overhead -
Capital -
Profit 140000
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210000
This is the abstract of the balance sheet as per the marginal costing. Has per the above balance
sheet that means in the assets has a return on the inventory and current assets that will be the part
first and in the part second the liabilities will be minimised and the profit will become.
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Absorption costing
Absorption costing is the costing in which all cost is calculated of the production is come under
in the absorption costing.
Absorption Costing Amount
Revenue 800000
Less:
Cost of sold products
Opening inventory 0
(+) Production cost 730080
(-) Amount of closing inventory 81120 648960
Contribution 151040
In this absorption costing that will be the difference from the marginal costing. That is all
production cost come in the absorption costing just like direct material, labour, factory overhead
etc. That will be calculated differently for getting the profit.
Abstract of the balance sheet
The balance sheet as per the absorption costing
Particular Amt.
Assets
current assets 151040
inventory 81120
232160
Liabilities 81120
Overhead -
Capital -
Profit 151040
232160
This is the absorption costing, abstract of the balance sheet. That all are a value derived from the
absorption costing for making the balance sheet. In the balance, sheet value is in two parts assets
and liabilities for getting the profit.
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Reconciliation statement
Particulars Amount
profit as per absorption costing 151040
The difference in closing stock value 11120
Numerical fraction 80
profit as per marginal costing 140000
In the marginal costing and absorption costing the difference amount in the profit will be
returned in the reconciliation statement. In the reconciliation statement, will gives the reason
why the changes are is profit derived in these two methods. Since that, all solved the income
statement.
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