Page 87 - BA2 Integrated Workbook STUDENT 2018

Marginal and absorption costing

The treatment of fixed production costs

Marginal and absorption costing are two different ways of valuing the cost of goods
sold and finished goods in inventory which can affect the profit charged to the
statement of profit or loss.

The main difference between marginal costing and absorption costing is the
treatment of fixed production costs:

Marginal costing Absorption costing
ion ion
Period Product

cost cost

 Period costs are costs which are charged in full to the statement of profit or loss
in the period in which they are incurred.

 Product costs are charged to the individual product and matched against the
sales revenue they generate.

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