Comparison of the Income Statement between Marginal and Absorption

Costing
Marginal Costing
Sales
Less: Cost of sales
Opening inventory (VC)
Add: Production cost (VC) *
Less: Closing Inventory (VC)
Less: Non production overhead (VC)
Selling and Distribution
Administration
Financial
CONTRIBUTION MARGIN
Less: Fixed Costs
Fixed production overhead
Fixed Selling and Distribution
Fixed Administration
Fixed Financial
NET PROFIT/LOSS
*Production costs include direct material,
direct labour and variable production
overhead

Absorption Costing
Sales
Less: Cost of sales
Opening inventory (VC + FC)
Add: Production cost (VC + FC) *
Less: Closing Inventory (VC + FC)
*Production costs include direct material,
direct labour and variable production
overhead
GROSS PROFIT
Less: Expenses
Selling and Distribution (VC + FC)
Administration (VC + FC)
Financial (VC + FC)
NET PROFIT BEFORE ADJUSTMENT
Adjustment for over/under absorbed
Fixed overhead absorbed (as per AC)
Fixed overhead absorbed (as per MC)
NET PROFIT AFTER ADJUSTMENT

PROFIT RECONCILIATION STATEMENT

Profit as per Marginal Costing

xxx

Add: Increase in inventory unit x fixed production overhead per unit*

OR
Less: Decrease in inventory unit x fixed production overhead per unit*

xx
OR
(xx)

Profit as per Absorption Costing

xxx

*(Compare between opening and closing inventory)