Marginal Costing and

Absorption Costing
 Absorption (Full) Costing : A method
of costing in which product costs
include direct materials, direct
labour and fixed and variable
overhead; required for external
financial statements and for income
tax reporting.
 Variable (direct)costing : A method of costing
in which product costs include direct
materials, direct labour and variable overhead;
Fixed overhead is treated as a period cost;
consistent with CVPs focus on cost behavior.
The only difference between absorption and
variable costing is the treatement of fixed
overhead.