Absorption costing as an alternative to marginal costing

Absorption costing as an alternative to marginal costing

1. Absorption costing

   • Allocation and apportionment
   • absorbing indirect costs into product
     • direct labour hours
     • direct production hours/machine hours
     • units produced
     • percentage of sales value
     • Percentage of direct cost
     • activity consumption
   • over- and under-absorption of overheads

2. Marginal costing

3. Why two contrasting approaches to costing?

   • Absorption and marginal costing

4. Under-/over-absorption of indirect costs

5. Allocation of indirect costs to production and service departments

6. Reciprocal allocation of indirect costs: service departments

7. Advantages and disadvantages of different costing approaches

8. Pricing decisions using absorption and marginal costing approaches