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Finance & Accounting
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COSTING METHODS Differences between absorption costing and marginal costing Your name ……………………………………. College / University ……………………………. Date ……………………………………………. Introduction For any business, frequent, accurate and reliable information pertaining to business activities and costs incurred are critical to business success so as to plan for the future and control business results more effectively…

Introduction

Among the various costing methods, absorption costing and marginal costing are the two important tools that are widely used for managerial decision making. This piece of research paper describes the differences between these two methods and explains the arguments for and against these costing methods. Marginal Costing As Lucey and Lucey (2002, p. 296) defined, marginal costing is an accounting system in which variable costs are charged to some specific cost units for a period of time and fixed costs are fully written off against the total contribution, which is the value of sales less variable costs. Marginal costing is widely used and is considered to be more effective and useful in the valuation of stocks and in the calculation of total costs of goods sold because of that only variable manufacturing costs are considered in this type of costing method. Variable manufacturing costs are considered in this costing method as they are attributed to the cost units and fixed costs are ignored. Marginal cost and variable production costs are more often used interchangeably. ...
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