Marginal and Absorption Costing Methods

Direct Material + Direct Labor + Variable FOH

Manufacturing cost (other than fixed part of Overheads) treated as cost for stock valuation and non-manufacturing plus fixed part of overheads cost charged to income statement

SaleXXX

Less- Cost of Goods Sold:

Direct Material XXX

Direct Labor XXX

Variable Factory Overhead Applied XXX(XXX)

Variable Cost of Good Manufactured XXX

Add – Opening Finished GoodsXXX

Less – Closing Finished Goods (XXX)

Gross ContributionXXX

Less – Variable selling & administration overhead (XXX)

Net Contribution XXX

Less – Operating Expenses:

Selling overhead (Fixed) XXX

Factory overhead (Fixed) XXX

Administration overhead (Fixed) XXX(XXX)

Operating Profit/ Net Profit XXX

Direct Material + Direct Labor + Total FOH

Manufacturing cost treated as cost for stock valuation and non-manufacturing cost charged to income statement

Sale XXX

Less- Cost of Goods Sold:

Direct Material                                (XXX)

Direct Labor                                (XXX)

Factory Overhead Applied (Fixed + Variable)(XXX)

Cost of Good Manufactured XXX

Add – Opening Finished Goods XXX

Less – Closing Finished Goods (XXX)

Cost of Goods Sold XXX

Add – Under Applied XXX

Less –Over Applied (XXX)

Gross Profit                                XXX

Less – Operating Expenses:

Selling overhead (Fixed + Variable) XXX

Administration overhead (Fixed + Variable) XXX(XXX)

Operating Profit/ Net Profit XXX

Less- Difference in closing stock                                                         (XX)

Add- Difference in opening stock                                                       XXX

Net income (Marginal costing)                                                           XXX