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Absorption and marginal 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
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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