Absorption and Marginal Costing Assignment Example | Topics and Well Written Essays - 2500 words

Absorption and Marginal Costing - Assignment Example This technique of costing is also known as the full-cost technique (Sikdar, 2008). In reality, the technique of marginal costing takes into consideration the behavioral features of costs by segregating the costs into fixed and variable elements. The segregation is done because per unit variable cost is fixed and total costs are variable in nature but actually total fixed costs are fixed and per unit fixed cost is variable in nature. In addition, variable costs are handy in nature, whereas total fixed costs are unmanageable in nature. Short term planning makes use of the Marginal costing technique. Control and decision making in particular reference to the production of multi-products also uses marginal costing (Sikdar, 2008). The contribution in marginal costing technique is computed after taking away variable costs from sales value. This is the way in which the total share of all products/services incurred towards the total fixed costs by the business is also taken into account. Since the fixed costs are dealt with as period costs they are subtracted from total share to compute net profit (Sikdar, 2008). From the perspective of cost for a product/service, an absorption costing regards a share of all costs incurred by a business with regard to each of its products/services. Costs are segregated based on their functions under absorption costing technique. Apart from this costs which are incurred with reference to other business functions are subtracted to compute the net profit. Thus we can infer that absorption costing is a better info give to price products since it takes into account both variable and fixed costs (Sikdar, 2008). The costs that fluctuate with a resolution should only be included in decision analysis. For many decisions that engage comparatively small fluctuations from accessible practice and/or are for comparatively restricted periods of time, fixed costs are not applicable to the decision.