ECONOMICS

Detailed explanation-1: -5. In case of marginal costing the cost per unit remains the same, irrespective of the production as it is valued at variable cost In case of absorption costing the cost per unit reduces, as the production increases as it is fixed cost which reduces, whereas, the variable cost remains the same per unit.

Detailed explanation-2: -The main difference between marginal costing and absorption costing is that in marginal costing, variable cost is treated as product cost, and fixed cost is treated as period cost. On the other hand, in absorption costing, variable and fixed costs are treated as product costs.

Detailed explanation-3: -Under absorption costing, if inventories increase then a portion of the fixed manufacturing overhead costs of the current period is deferred to future periods in the inventory account.

Detailed explanation-4: -Only the variable cost is applied to inventory under marginal costing, while fixed overhead costs are also applied under absorption costing. Profitability. The profitability of each individual sale will appear to be higher under marginal costing, while profitability will appear to be lower under absorption costing.

Detailed explanation-5: -The difference between the profit figures calculated under absorption and marginal costing principles is caused by the treatment of fixed production overheads. In marginal costing the full amount of fixed production overheads is written off in the period that it occurs.