Page 181 - F2 - MA Integrated Workbook STUDENT 2018-19
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Absorption and marginal costing
Comparing marginal and absorption
costing profits
4.1 Comparing absorption and marginal costing
Marginal costing highlights the contribution per unit and treats fixed production
overheads as a period cost, deducting these in total from the total contribution.
In marginal costing, the fixed costs actually incurred are deducted from
contribution earned in order to determine the profit or loss for the period.
Absorption costing treats fixed production overhead as a product cost and each unit
absorbs a share of the fixed overhead.
In absorption costing, fixed overheads are absorbed into each unit of product
using a predetermined overhead absorption rate. An adjustment for under or
over absorption of overheads is necessary in absorption costing statements of
profit or loss.
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