Difference between Marginal Approach & Absorption Approach - Conceptual Understanding

   

MARGINAL APPROACH	ABSORPTION APPROACH
1.     It helps in decision making.	1.     It helps in calculating the Total cost of the Product.
2.    Decision making involves the following types of decisions :-       a.)  Accepting or Rejecting the           offer.       b.)  Minimum Price Quotation.       c.)  How much Quantity of each           product should be produced &           sold to recover fixed cost. Hence we can say that entire burden of Fixed cost to be charged with the entire quantity sold, therefore there will not be any volume variance.	2.    In order to calculate Total cost, Fixed cost should be apportioned on every product with the application of “Recovery Rate” . Hence If Actual Output (Result) differs from Budgeted output (result), Then volume variance exists.
3.    In this approach Fixed cost is termed as Periodical cost, it has no relationship with individual Product.	3.    Fixed cost is termed as Product cost, hence in this approach Fixed cost per unit is calculated.
4.    Marginal Technique is applied either before commencement of the production or at the end of the period.	4.    Absorption Approach is applied during the production and at the end of the period.