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CIMA BA2 Notes Chapter 5-Marginal and absorption costing
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CIMA BA2 Notes Chapter 5-Marginal and absorption costing
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BA 2 - Fundamentals of Management AccountingMarginal and absorption costing
Chapter five
BA 2 - Marginal and absorption costing. Quantia Learning
,BA 2 - Marginal and absorption costing. Quantia Learning
, Marginal and absorption costing are two different ways of valuing the cost of goods sold and
finished goods in inventory which can affect the profit charged to the statement of profit or loss.
In order to understand the difference between marginal and absorption costing, we have to look
at a new cost classification and classify each cost as either a period or a product cost
Period costs are costs which are charged in full to the statement of profit or loss in the period in
which they are incurred.
Product costs are charged to the individual product and matched against the sales revenue
they generate.
Type of cost Marginal cost Absorption
costing
Variable production cost Product cost Product cost
Fixed production cost Period cost Product cost
Variable non-production Period cost Period cost
cost
Fixed non-production cost Period cost Period cost
When companies chose between adopting marginal or absorption costing for internal reporting
in the management accounts, this choice can affect:
1. Inventory valuation (and therefore cost of sales in a period)
2. The format of the statement of profit or loss.
BA 2 - Marginal and absorption costing. Quantia Learning
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