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ACCA Applied Knowledge · Management Accounting · Absorption and marginal costing

Which of the following is an advantage of absorption costing?

An advantage of absorption costing is that it includes fixed production overheads in inventory valuation, so costs are matched to the sales they help produce. This follows IAS 2. Contribution per unit and profit tied to sales volume are marginal costing features.

  1. AIt avoids arbitrary apportionment of fixed overheads
  2. BIt shows contribution per unit directly for short-term decisions
  3. CIt ensures the full cost of production is recognised in inventory valuation, matching costs to salesCorrect
  4. DIt gives profit that moves in line with sales volume only

Explanation

Absorption costing includes fixed production overheads in unit cost and inventory, matching them to the period in which goods are sold, as IAS 2 requires. The other options describe marginal costing features.

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