Question

What distinguish absorption costing from marginal
Costing ?
-
Product costs includes both prime cost & production
overhead.
Products Gosts includes both production and non
praduction costs.
Stock valuation Includes a shore of all production
Costs.
Stock valuation includes a share of all costs.​

Answer 1

Answer:

The difference between absorption costing and marginal costing is based on the recovery of fixed overheads. In absorption costing both fixed and variable overheads are charged to production. As a result, work in progress and finished goods are valued at ‘works cost’ and ‘total cost of production’ respectively, giving effect to fixed overheads. In marginal costing only variable overheads are charged to production, thereby leading to under-recovery of overheads. This obviously leads to undervaluation of closing stock. But this does not result in carrying over of fixed overheads of one period to another, as it happens in absorption costing.