1. THE INSTITUTE OF CHARTERED ACCOUNTANTS OF SRI LANKA
POSTGRADUATE DIPLOMA IN BUSINESS AND FINANCE / Principles of Financial and Cost Accounting
Thilanka Warnakulasooriya B.Com Special (Col), ACA, MBA-Fin

2. Absorption costing Marginal costing
It is costing system which treats all manufacturing costs including both the fixed and variable costs as product costs
Marginal costing
It is a costing system which treats only the variable manufacturing costs as product costs. The fixed manufacturing overheads are regarded as period cost

3. Non Manufacturing cost Selling & Distribution
Absorption costing
Cost
Manufacturing cost
Non Manufacturing cost
Selling & Distribution
Admin
Direct Material
Direct Labor
Overhead
Finish Good
Cost of good sold
Profit & Loss Account

4. Non Manufacturing cost Selling & Distribution
Marginal costing
Cost
Manufacturing cost
Non Manufacturing cost
Admin
Selling & Distribution
Direct Material
Direct Labor
Variable Overhead
Fixed Overhead
Finish Good
Cost of good sold
Profit & Loss Account

5. Trading and profit & loss account
Absorption costing Marginal costing
$ $
Sales X Sales X
Less: Cost of goods sold X Less: Variable cost of
Goods sold X
Gross profit X Product contribution margin X
Less: Expenses Less: variable non- manufacturing
Selling expenses X expenses
Admin. expenses X Variable selling expenses X
Other expenses X X Variable admin. expenses X
Other variable expenses X
Total contribution expenses X
Contribution X
Less: Expenses
Fixed selling expenses X
Fixed admin. expenses X
Other fixed expenses X
Net Profit X Net Profit X
Variable and fixed manufacturing

6. Comparison of absorption costing & Marginal Costing
Situation
Stock Level
Profit 1
No change
No difference 2
Increases
AC Profit is greater than MC Profit 3
Decreases
MC profit is greater than AC profit