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Direct (marginal) costing differs from absorption costing in that:
ABoth fixed and variable manufacturing costs are charged to the product
BAdministrative overhead is fully included in product cost
COnly costs that vary with volume are charged to the product; fixed costs are written off in full against contribution of the period
DSelling expenses are added to product cost
Answer & Solution
Correct answer: C. Only costs that vary with volume are charged to the product; fixed costs are written off in full against contribution of the period
1. Direct costing charges only variable costs to the product (direct material, direct labour, variable mfg expenses).
2. Fixed costs of the period are written off in full against contribution (sales − variable cost).
3. It is the basis for marginal cost accounting and is used mainly for internal decision-making.
_Source: ICMAI BoS CMA Foundation Paper 2 (Cost Accounting), Module 4 §4.1-4.2 (Methods & Systems of Costing), p. 297-308_