Absorption costing: The costs are split based on function – production or non-production , Inventory is valued at the full production cost (fixed and variable production costs) , Fixed costs are split between production and non-production costs , Non-production overheads are deducted after gross profit, Adheres to IAS 2 Inventory and can therefore be used for the financial accounts of the business, Marginal costing: The cost of a product is the total variable production costs., In this costing fixed overheads are treated as period costs and are charged in full against the profit for the period. ,  This costing assigns fixed production overheads to the inventory , Variable non-production overheads are excluded from the valuation of inventory but are deducted before contribution , It does not adhere to IAS 2 Inventory so is mainly used internally for decision making processes ,

Absorption costing vs Marginal costing - AAT- Management Accounting

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