Friday, August 15, 2014

Marginal Costing - Differences

a)      Marginal cost is a unit concept and applies to output per unit basis. Whereas Differential cost is a total concept and applies to a fixed additional quantity of output.
b)      Marginal costing is presented by showing contribution per unit and fixed cost as a total amount. Whereas Differential costs are presented in totals in both formats – i.e. under marginal cost as well as absorption cost techniques.
c)       Product cost under differential cost analysis may contain fixed costs, which will not be so under marginal costing.
d)      Marginal Cost can be incorporated in the accounting system but Differential cost is determined separately from the analysis of accounting records.
e)      In Marginal Costing Managerial Decisions are based mainly on Contribution. But in Differential Costing Differential Costs are compared with incremental or decremental revenues for evaluating managerial decisions.

Difference Between Marginal Costing and Absorption Costing:

a)      Concept of profit: - Under absorption costing, net profit is arrived at by deducting administration, selling and distribution expenses from gross profit. But Under marginal costing, net profit is arrived at by deducting fixed expenses from contribution.
b)      Chargeability: - Under Marginal Costing, only marginal cost is charged to products. But under Absorption Costing, both fixed and variable cost is charged to the cost of products.
c)       Valuation of Stock: - Stock is valued at variable costs under Marginal cost. But under Absorption costing stocks are valued at total costs.

d)      Absorption of Fixed Expenses: - In Marginal Costing, Fixed cost is wholly charged against contribution. But in Absorption costing, Fixed costs are absorbed on the basis of volume of output.

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