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It is a technique of decision making By differentiating fixed and variable costs, it tries to ascertain effect on profit of change in volume or type of output All the costs are segregated into fixed and variable components Only the variable costs (termed as marginal costs) are regarded as product costs and are used to value inventories and cost of goods sold
DIFFERENTIAL COSTING
It is a technique used in preparation of ad-hoc information in which only cost and income differences between two alternatives are taken into consideration. So a comparison between the costs and revenues under different situations is made and an alternative is selected only in a case where it is most beneficial.
ABSORPTION COSTING
Absorption costing is a total cost technique under which total cost (i.e. fixed cost as well as variable cost) is charged as production cost. In other words, in absorption costing, all manufacturing costs are absorbed on the basis of a predetermined overhead rate based on normal capacity. Absorption costing is the conventional technique of matching costs with revenues. In this technique all costs are divided into three parts (1) Manufacturing or Factory Cost (2) Selling Costs and (3) General Administration costs.
Marginal Costing is a technique of analysing the changes of cost due to the changes in volume of production. The total cost of production may be classified into fixed cost and variable cost. Fixed cost remain constant upto certain level of production. The variable cost changes due to the changes in volume of
production.
The variable cost is otherwise called as marginal cost.
MARGINAL COSTING The ICMA, London defined Marginal Costing as The ascertainment of marginal cost and of the effect on profit of changes in volume or type of output by differentiating between fixed cost and variable cost. Characteristics of Marginal Costing 1. The total cost of production is classified into fixed and variable cost. 2. It is a technique of costing which helps the management to take various managerial decisions. 3. The stock of finished goods and work-in-progress are valued at marginal cost. 4. The price of the product is determined on the basis of contribution.