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ACCA Applied Knowledge · Management Accounting · Alternative cost accounting principles

Which of the following is an argument in favour of marginal costing rather than absorption costing for decision making?

Marginal costing supports decision making because contribution per unit is not distorted by arbitrary apportionment of fixed overheads. Absorption costing includes fixed production overhead in unit costs, which can mislead short-term decisions, and it is the method needed for IAS 2 inventory valuation, not marginal costing.

  1. AContribution per unit is not distorted by arbitrary fixed overhead apportionmentCorrect
  2. BClosing inventory is valued in line with IAS 2 requirements
  3. CFixed production costs are matched with the units that benefit from them
  4. DProfit is unaffected by the level of sales

Explanation

Marginal costing keeps fixed costs separate, so unit contribution is not affected by arbitrary overhead apportionment, which helps in decisions such as pricing and make-or-buy. Valuation under IAS 2 and matching fixed costs to units are arguments for absorption costing. Profit under marginal costing is directly affected by sales volume, not unaffected.

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