CMA

Comprehensive study of cma covering fundamental concepts and advanced applications.

Introduction to Cost and Management AccountingElements of CostCosting Methods
Budgeting and Budgetary ControlStandard Costing and Variance AnalysisMarginal and Absorption Costing
Preparing a Cost SheetDecision Making Using Marginal CostingPractical Variance Analysis
Time Management for CMA ExamsEffective Revision TechniquesHandling Exam Stress
Introduction to Cost...Elements of CostCosting MethodsBudgeting and Budget...Standard Costing and...Marginal and Absorpt...Preparing a Cost She...Decision Making Usin...Practical Variance A...Time Management for ...Effective Revision T...Handling Exam Stress
Advanced Topics

Marginal and Absorption Costing

Two Ways to Treat Costs

Marginal costing and absorption costing are two different approaches to costing products.

Marginal Costing

  • Only variable costs are charged to products.
  • Fixed costs are treated as period costs (expenses).

Absorption Costing

  • Both variable and fixed costs are assigned to products.
  • Used for external financial reporting.

Key Differences

  • Marginal costing aids short-term decision-making.
  • Absorption costing gives a complete picture of product costs.

Application

Marginal costing helps managers decide whether to accept special orders or discontinue a product line, while absorption costing ensures accurate profit reporting.

Marginal Cost Formula

\[ \text{Marginal Cost} = \frac{\Delta \text{Total Cost}}{\Delta \text{Quantity}} \]

Key Formula

\[\text{Marginal Cost} = \frac{\Delta \text{Total Cost}}{\Delta \text{Quantity}}\]

Examples

  • A toy company uses marginal costing to decide if it should accept a bulk order at a lower price.

  • A food manufacturer uses absorption costing to report inventory values in its financial statements.

In a Nutshell

Marginal costing focuses on variable costs, while absorption costing includes all costs.

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Preparing a Cost Sheet