In product costing, the costs attributed to each unit of production may be calculated by using either:

(i) Absorption costing, or

(ii) Marginal (or direct or variable) costing.

Similarly, in departmental cost or profit reports the fixed costs of overhead or service departments may be allocated to production departments as an integral part of the production departments’ costs or else segregated in some form.

Required:

Describe absorption and marginal (or direct or variable) costing and outline the strengths and weaknesses of each method.