Difference between Absorption Costing and Marginal (Variable) Costing.

Expert Answers

An illustration of the letter 'A' in a speech bubbles

In the production process, there are different ways to categorize the costs that are involved.  One way is to differentiate between direct and indirect costs.

The direct costs of production are the ones that are directly caused by the production.  These would include the costs of the raw materials and...

Unlock
This Answer Now

Start your 48-hour free trial to unlock this answer and thousands more. Enjoy eNotes ad-free and cancel anytime.

Start your 48-Hour Free Trial

In the production process, there are different ways to categorize the costs that are involved.  One way is to differentiate between direct and indirect costs.

The direct costs of production are the ones that are directly caused by the production.  These would include the costs of the raw materials and labor that go into the production of any unit of the product.

The indirect costs of production are like fixed costs -- they don't vary with the amount produced.  An example of this would be the mortgage on your factory.

In absorption costing, both the direct and indirect costs are included when you figure the cost of the unit of product.  In marginal costing, you only take into account the direct costs.

Approved by eNotes Editorial Team