CAT P2 Information for Management Control

Marginal costing and absorption costing

PRE-LECTURE QUESTIONS: MARGINAL COSTING AND ABSORPTION COSTING

Lesson 1
Absorption costing What is absorption costing?

What is profit?

Selling price Direct material Direct labour Fixed production overhead Variable production overhead Fixed selling and administrative cost Variable selling and administrative cost

$XXXX $XXXX $XXXX $XXXX $XXXX $XXXX $XXXX

Under absorption costing, write the format for calculating gross profit and operating profit (using the above items)?

Under absorption costing, how is the closing stock valued (using the above items)?

What is the treatment for fixed production overhead?

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CAT P2 Information for Management Control

Marginal costing and absorption costing

FPOH incurred Less: FPOH absorbed

XXXX XXXX A

If A is positive: What does it mean? How do you adjust your accounts? If A is negative: What does it mean? How do you adjust your accounts?

What are the arguments for absorption costing? 1. 2. 3.

What are the arguments against absorption costing? 1. 2. 3.

Is absorption costing a feature of financial accounting?

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CAT P2 Information for Management Control

Marginal costing and absorption costing

Lesson 2
Marginal costing What is marginal costing?

What is contribution?

Selling price Direct material Direct labour Fixed production overhead Variable production overhead Fixed selling and administrative cost Variable selling and administrative cost

$XXXX $XXXX $XXXX $XXXX $XXXX $XXXX $XXXX

Under marginal costing, write the format for calculating contribution and operating profit (using the above items)?

Under marginal costing, how is the closing stock valued (using the above items)?

What is the treatment for fixed production overhead?

Is marginal costing a feature of financial accounting?

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CAT P2 Information for Management Control

Marginal costing and absorption costing

What are the arguments for marginal costing?

What are the arguments against marginal costing?

Reconciliation of profits under absorption costing and marginal costing

What causes the difference between the profit reported under absorption costing and marginal costing?

The effects of changes in stock levels (compare profit reported under absorption costing and marginal costing) If the stock level remain the same If stock level increases If stock level decreases

Usefulness Absorption costing is important to management because: It shows _________________________________________________ ________________________________________________________

Marginal costing is important to management because: It assists _________________________________________________ _________________________________________________________

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