Marginal and Absorption Costing

Question 1

Name an advantage and disadvantage of marginal costing.

Answer 1

1. It is a tool for short-term decisions as if provides information for decision making
2. The fixed costs are underestimated, so value of inventory may be understated.

Question 2

Name an advantage and disadvantage of absorption costing.

Answer 2

1. Recommended for pricing decisions as it allocates the fixed cost to the product.
2. It is unsuitable for decision-making as costs are not classified by their behaviour.