Difference between standard costing and marginal costing
Answers
Answer:
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Explanation:
The difference between marginal costing and absorption costing
Marginal costing applies only those costs to inventory that were incurred when each individual unit was produced, while absorption costing applies all production costs to all units produced. This results in the following differences between the two methods:
Cost application. Only the variable cost is applied to inventory under marginal costing, while fixed overhead costs are also applied under absorption costing.
Profitability. The profitability of each individual sale will appear to be higher under marginal costing, while profitability will appear to be lower under absorption costing.
Measurement. The measurement of profits under marginal costing uses the contribution margin (which excludes applied overhead), while the gross margin (which includes applied overhead) is used under absorption costing.
Overhead costs are charged to expense in the period under marginal costing, whereas they are applied to products under the absorption costing method (which may defer expense recognition to a later period).
An additional difference is that absorption costing is required by the applicable accounting frameworks for financial reporting purposes, so that factory overhead will be included in the inventory asset. Marginal costing is not allowed for financial reporting purposes, so its use is restricted to internal management reports.
Standard costing:
costing is that in wch ne target is set and we have to achieve that target .And in marginal costing we did'nt need to set any target in this we read out about the behaviour of cost and this teqnique is used to analyse performance and for profit planning ,fixing prices and most important cost contol .
marginal cost:
This costing system categorizes cost according to their cost behavior and divides them into variable and fixed cost, this system uses a cost for each unit of output based purely on the variable cost. All fixed cost is regarded as times based and are therefore linked to accounting periods