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MARGINAL & ABSORPTION COSTING

MARGINAL & ABSORPTION COSTING. Learning Objectives : 1.Understand the marginal costing and absorption costing 2. Illustrate Income Statement using marginal and absorption costing. What is Marginal Costing ?. One of the accounting system used to determine the product cost

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MARGINAL & ABSORPTION COSTING

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  1. MARGINAL & ABSORPTION COSTING Learning Objectives : 1.Understand the marginal costing and absorption costing 2. Illustrate Income Statement using marginal and absorption costing

  2. What is Marginal Costing ? • One of the accounting system used to determine the product cost • Also known as direct costing or variable costing because it only considers variable costs or direct costs in the computation of cost of a product • It will show how a changes in output will effect the cost & profit

  3. Absorption Costing • All cost ( variable & fixed cost ) is considered in determining unit cost.

  4. Marginal Costing Absorption Costing Production Cost Production Cost Raw Materials Direct Labour Direct Expenses Variable Manufacturing OH Fixed manufacturing OH Sales & Administration Expenses

  5. Income Statement Presentation- Marginal Costing-

  6. Income Statement Presentation- Absorption Costing-

  7. Example 1 : Operational data for MTH Co : Opening stock - Production 25,000 unit Sales 20,000 unit Closing stock 5,000 unit Manufacturing cost: Raw material RM1.20/unit Labour RM2.00/unit Variable OH RM0.60/unit Selling & Admin : variable RM4,000 fixed RM7,500 Selling price RM6.00/unit

  8. Fixed manufacturing OH was absorbed based on these budgeted data : Budgeted fixed OH RM20,000 Budgeted volume 25,000 unit Prepare Income Statement by using the following costing methods: i. Marginal Costing ii. Absorption Costing

  9. Solution : ( marginal …) How did u derived this figure ?

  10. Solution : (absorption …) How did u derived this figure ?

  11. Have a break Peter Piper Pipkin picked a packed of peppercorns If Peter Piper Pipkin picked a packed of peppercorns Where’s the packed of peppercorns that Peter Piper Pipkin picked ?

  12. Example 2 : Operational data for MKG Co : Opening stock - Production 36,000 unit Sales 30,000 unit Closing stock 6,000 unit Actual Cost: Raw material RM1.80/unit Labour RM1.50/unit Variable manufacturing OH RM1.00/unit Fixed manufacturing OH RM12,000 Selling & Admin : variable RM8,200 fixed RM3,600 Selling price RM6.00/unit

  13. Fixed manufacturing OH was absorbed based on these budgeted data : Budgeted fixed OH RM14,000 Budgeted volume 35,000 unit Prepare Income Statement by using the following costing methods: i. Marginal Costing ii. Absorption Costing

  14. Solution: • Unit cost : AC MC Raw material 1.80 1.80 Labour 1.50 1.50 VOH 1.00 1.00 FOH 0.40 -___ 4.70 4.30

  15. Solution : (absorption …) MTH Co. Income Statement for year ended ….. Sales(30000 x RM6) 180,000 Minus : Cost of sales Opening stock - Production cost (36,000 x RM4.70) 169,200 - Closing stock (6000 x RM4.70) (28,200) 141,000 Gross profit 41,400

  16. Minus : Selling & distribution – variable 8,200 - fixed 3,600 11,800 Unadjusted net profit27 200 + Over absorbed OH 2 400 Net profit 29,600

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