Answer to Question #311645 in Management for Priya

Question

Plyway manufactures and sells wooden chairs. The chief accountant of the entity is

contemplating whether to follow marginal costing or absorption costing for preparing

the profit statement. Explain any three advantages of marginal as well absorption

costing to the chief accountant. Also, try to bring out three differences between marginal

and absorption costing to make the choice easy for the chief accountant. If the chief

accountant is preparing the profit statement for internal, decision-making purpose,

which of the two methods should she follow?

Answer 1

As a result, neither cost nor profit are tainted. Comparisons of costs become increasingly useful. (iii) The technique produces data that may be used to make managerial decisions. (iv) There is no concern with overhead absorption being too high or too low.