Marginal and absorption costing
ID:CVMAC

Video Overview

An important function performed by the cost and management accountant is the calculation of the cost of production of one unit of the product. There are two alternative methods that can be used to calculate product cost. The one is marginal costing and the other method is absorption costing. Marginal costing only takes the variable production costs into account when calculating product costs. The fixed production overhead costs are treated as period costs. In other words these will not form part of cost of sales. Absorption costing includes fixed production overhead costs in product costs and therefore cost of sales. In this tutorial we will look at the difference between marginal and absorption costing.