22.14. Comparison: Marginal Costing vs Absorption Costing

Try these first

1. 1.

   What costs are included in marginal costing?

   Hint

   Think about what 'marginal' means in this context.

2. 2.

   Which costing method is used for external reporting?

   Hint

   Consider what standards companies must follow.

3. 3.

   What costs are assigned to products in marginal costing?

   • Only fixed costs
   • Only variable costs
   • Both fixed and variable costs

   Hint

   Remember, marginal means 'additional' or 'small'.

4. 4.

   Does absorption costing include fixed costs in product pricing?

   • True
   • False

   Hint

   Think about what absorption means.

5. 5.

   A tech company produces a software package at a variable cost of ₹500 per unit and has fixed costs of ₹30,000. If they sell each unit for ₹900, calculate the break-even point in units using both methods, and discuss the advantages or disadvantages of each.

   Hint

   Focus on how each method treats fixed costs in the break-even calculation.

6. 6.

   Evaluate a scenario where a company experiences a sudden increase in production volume. Discuss how both costing methods would represent changes in profit and inventory levels.

   Hint

   Consider fixed costs' effect on profitability during different production levels.