Absorption and Marginal Costing

[Muhammad Adnan Arshad]

(A) If Production Volume > Sales Volume, then
Profit under Absorption Costing > Profit under Marginal Costing
& it shows that there is a building-up of inventory/stock levels (or stocking).

(B) If Production Volume < Sales Volume, then
Profit under Absorption Costing < Profit under Marginal Costing
& it shows that there is a running-out of stocks (or destocking).

(C) If Production Volume = Sales Volume, then
Profit under Absorption Costing = Profit under Marginal Costing
& it shows that there is a constant/static inventory (or stocks) levels.

PROFITS RECONCILIATION STATEMENT-

PROFIT UNDER ABSORPTION COSTING TECHNIQUE

LESS
Closing Stock-AC
Opening Stock-MC

ADD
Closing Stock-MC
Opening Stock-AC

= PROFIT UNDER MARGINAL COSTING TECHNIQUE

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