Absorption Costing vs Marginal Costing | Explained with Example

In this lesson, we look at both absorption costing and marginal costing. We explain what absorption costing is, what marginal costing is, and go through a thorough example on how to calculate net profit using both the absorption costing and marginal costing.
In looking at absorption costing, we explain and go through some examples on over and under absorption of fixed production overheads.
We also look at arguments in favor of both absorption costing and marginal costing.
Check out other straight-forward examples on our channel.
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[@yaseenali5842]

Your work is better then any youtuber, you are better then my class teacher, keep uploading such topics
Very grateful to know about about this channel

[@Counttuts]

Thank you for the kind comment Yaseen :).

[@georgephilip1966]

@@Counttuts For over and under absorption, why didn't we consider the variable cost of r 35?

[@boitumelobonginkosikunene3547]

A whole semester struggle cleared in 32 minutes🤯...your videos always blow my mind...and still, I don't expect anything less everytime I come back for more💯👍. Thank you, you've really helped me.

[@kijeannie4317]

This really helped me understand marginal and absorption costing.... I had a mental block for years until now. Wonderfully explained .... such clarity.

[@ambrosemutai5463]

This is one of the best explanations for costing and has helped me understand absorption and marginal costing so well

[@katrinaaliviza457]

I had a really hard time understanding this concept. I've watched a lot of videos read a lot and still nothing. But earlier today my friend shared this link. I'm so excited I can answer a question blindfolded 😂. Thank you so much for amaizing work sir.

[@Counttuts]

Hello Katrina, glad that it helped. Thanks for the kind feedback.

[@tatisammy9169]

How did you teach me 2 2hr classes in 32 mins thank you

[@muigaisarah5342]

u've saved lots of students , thanks a lot

[@Counttuts]

You are welcome. Thank you for the kind feedback.

[@marcleven8477]

very well explained you are doing a better job than my uni lecturers thanks a lot keep up the good work!

[@karabobusang1942]

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Please continue doing such amazing work 🙏🏻

[@maryamadekunle6732]

This is amazing
I am a tutor and I can say I understand it way better.
Thank you for breaking this in the best possible way.

[@ajithkumarrj8545]

After searching lots of classes Finally I found ur channel for this topic . Amazing explain all the concepts.tq soo much sir ❤️

[@boitumelomokotong4861]

This was very informative. I enjoyed it and it has helped me tremendously👏🔥. God bless you.

[@RsWePVM]

Thank you sir, crisp and clear. Much better than how my teacher in college is doing.

[@Counttuts]

Thank you for the kind feedback.

[@barbaraedith4111]

You are such a wonderful Teacher/tutor. You are a star. I understand a lot from your video better than reading any book. Excellent.
Do you have any other accounting videos? please upload more.

[@Counttuts]

Thank you Barbara, you can visit our channel for all accounting videos, and more to come.

[@jiyaa8462]

Thank you so much, you're literally a life saver, having my finals tmrw, this really helped!

[@daia8404]

Thank you so much!!! I understand this more than I ever did in college

[@tonykiprop5802]

Thank you Counttuts for the explainer videos. You really help us to be more efficient instead of searching all over for such good content. You are making a difference, Appreciated!

[@aphiwembande8661]

Haven't even watched this but I've already liked cause I know I know it will be fire

[@shantelhalley6976]

Always dislike this topic but u made it simple... great job

[@walterbigblue]

You stated that over absorption of overheads is deducted from the P&L and under absorption is added to the P&L. My understanding is that it should be the other way around. Under absorption of overheads are deducted from the P&L while over absorptions are added thus increasing gross profit.

[@Counttuts]

That would be incorrect actually. Follow our explanation in the lesson again to understand.

[@luckyboyprins8456]

lectures give us hard times of learning , i thank god i found you sir
🎉🎊

[@EmyrEdmund]

Thank you! Your explanation and examples helped me understand, when I was struggling to make it click in my head :D

[@lisanaindjala2278]

Thank you so much sir for teaching me this😭I’m truly grateful and you are a great lecturer!

[@mariaindilileinge8761]

I really had a block mind on this but cleared , thank you very much sir keep uploading such topics.

[@darkknight6574]

Can't believe how much helpful this video is.
Thank-you so much!

[@MrsObiako]

Thank you Sir... I have truly understood this, especially how to treat over/under absorption cost...

[@davidgarvin2281]

Thank you for explaining this topic thoroughly, you have been very helpful.

[@wilkajohannes1003]

You are a life saver sir. Please continue doing this.

[@chiposvubure7150]

Thank you so much 🤝 Your are a good lecturer

[@chiposvubure7150]

I am looking for more videos for MAC2601 i can't find them 😢

[@madalitsombewe9948]

Love your teaching (simply simple and clear )

[@charitytheko8116]

Wow... everything makes sense now..Thank you counttut 😁

[@straightouttamatrix]

This was more than i was looking for and in a best way possible. Really appreciate the effort SIR. Thanks alot🙏🏻

[@esaubanda]

Immensely elated! This is incredible! I appreciate. You deserve my utmost attention. Keep it up. More blessings on you, great work, awesome!! Thanks

[@huisinyii4353]

i was wondering why when there is higher closing stock = profit will be higher when using absorption costing, and your example easily let me understand how it works. Thank you!

[@smartmgbachi9173]

if i dont comment i must be selfish. thank you so much for breaking down this topic. God bless you

[@Counttuts]

Thank you :) Blessings

[@ropafadzochivizhe4561]

Thank u for the presentation it really helped me especially absorption costing

[@alexwhelan981]

Thank you very much. Very informative and helped me prepare for an interview. Keep up the good work!

[@alenigodwin560]

U explained well brother thank you i wish we would get more examples with opening inventory

[@neonmuzik8979]

thanks sir, I think this made up my preparation of an exam I ama bout have! thx again

[@chandajere9586]

This is very clear and concise.Thank you so much

[@ShaggyGriff96]

thank you for taking the time to do this, my understanding is now much clearer :)

[@MultiSinovuyo]

Thank you for this video, made such a big difference

[@deepakkrishnakb]

Simple and nice explanation,thanks alot

[@sophielalalification]

Simple, clear and straight to the point! Thank you!

[@becomingCA-SA]

you definitely got a subscriber by the wat you explained this 💯

[@sharnyn7322]

I cannot thank you enough for this video!!!

[@ryan4314]

u saved my life thank you

[@nonkululekohlatshwayo8164]

Sir. You are simply the best

[@hasvinvictor7146]

Best video to watch on absorption and marginal costing!!! Thank you so much @counttuts

[@baloonram4959]

That was a very good explanation, now i am ready for exams, thank you sir :D

[@praisemutoko3175]

Thank you soo much, that was worthwhile. Now i am confident that i understand

[@Counttuts]

You are welcome :)

[@ThomasSheriff21Chindende]

the best ever explanations

[@fredrick_mwaura]

This is very well articulated. Keep up the good job.

[@lovehurtswhenattached92]

Thanks highly appreciated explanations on point and format easy for anyone to understand 👍 😀

[@chaly839]

Good lecture thank you so much. there is no problem with the way you have treated over/under absorption, my issue is on the part where you said when there is an increase in opening or closing inventory then the creation of overe/under absorption, my thinking is instead of increase in opening and closing let it be the difference between the budgeted production and the actual production.

[@symplytomi5178]

God bless you,you are a great lecturer!!!!

[@lucianakale1132]

Woow…….I don’t know how to thank you, I was wondering how am gonna face my exams next week

[@JanetMong]

Thankyou so much! Well explained

[@tiff8831]

This was very helpful. Thanks sir

[@kudsiamow3441]

Thanks a lot for explaining in details! ♥

[@RealHesk]

Thanks alot for your service. You've helped me

[@katienelson8163]

thank you so much! this really helped me

[@ronaharnischleinitz6335]

Thanks alot, was much of help.

[@mbasalamla7533]

wow 🙌🙌🙌 thank you Mr for you help
now I understand clearly

[@paysonobi6548]

I enjoyed your teaching

[@biandaful]

Well explained!!!!

[@mohamedfaisal4123]

Top notch explanation.

[@louisebowa6032]

This was really helpful, thank you very much🙏🏾

[@izzyokafor8888]

Keep up the good work watching from Nigeria. Can we also suggest topics for you to teach?

[@akankshathooti]

Thanks sir grt explanation

[@Counttuts]

Thank you. You are welcome.

[@danisabaloyi608]

Thank You, your work is amazing

[@yerroa.jallow4452]

thank you for the video, its really helpful.

[@musondamulenga9306]

thanks a lot ,great explanation!

[@Counttuts]

You are welcome, and thank you Musonda.

[@0dawisdom478]

Under and over absorbed use to confuse me, now im fine thnx

[@Ruth-Mocheche]

nice lecture. big ups

[@Dan-vk7jc]

Thanks so much assisted me so much!

[@Dendele2024]

Best explanatory video 🥂

[@patricklikalamu8264]

this is very helpful

[@ntcuong01ct1]

Dear Friends,
I have a question:
I want to setup Absorption costing of a product in year 2020. Next, I want to compare actual costing and Absorption costing in this product by month, year. How do I setup?.

[@patrickugwuegbu6119]

Very informative

[@aduratomibabalola9884]

Amazing lecture. cheers.

[@aliakim1934]

May you please upload target costing and life cycle costing

[@danielokere3624]

Please sir how do u know when to apply the absorbed overhead formula I'm a bit confused 😔

[@sinazopreciousmtana370]

@counttuts, do you use the predetermined / actual fixed overhead cost as a period cost in marginal costing?
I love your explanation sir👌

[@EnertMakwale]

I thought under absorption is like an expense so we subtract it from the gross profit and the over absorption is an asset we add it to the gross profit

[@mikanyay]

Thank you 😊

[@thembekilegwala3465]

Thank you. you are amazing

[@nokwandanoks1559]

Good day can i ask why you not bringing forward the closing. Inventory to the next production of 7000 units meaning the 41000 must be the opening for the production of 7000 units than closing Inventory will be 41000

[@serakwe718]

Haiii chief you are the best iyoooo I need for of ur help boss ,

[@sbohmdu2557]

it helps a lot, thanks.

[@braynotieno9564]

Good work 👏 🙌 👍

[@gibsonmweene8898]

now show us how you do the profit reconciliation for the two methods

[@DaiGua]

Sir, could I know why the closing inventory in absorption costing, production of 6000&7000units is zero? It shouldn’t have 1000units? Why

[@adaeze_]

It is not zero
Pay attention to the video again

[@boineelomasupe740]

Thank you❤❤❤❤❤

[@georgephilip1966]

For over and under absorption, why didn't we consider the variable cost of r 35?

[@joshuasackey5059]

Do we add over absorption or do we subtract? Other teachers add over-absorption and subtract under-absorption. Which is the accepted procedure? And lastly, other teachers use different formats. For example, under Absorption Costing, they start with Sales, Less Production Costs: Direct Materials Costs, Direct Labour Costs, Factory Overheads. Then they follow with Closing Inventory at full cost, before Cost Of Goods Sold, Add Over Recovery of Overheads, Gross Profit, Less Non-Factory Overheads: Selling, Distribution, and Administrative Costs. And finally Net Profit. The order of headings in your format is different. This leaves me in a state of confusion.

[@sowdaayaan1843]

The closing inventory for production of 6000 should it not be the opening inventory for the next production that 7000 units?

[@fahimjalal2703]

Thx for making the vid 😊

[@benmuhizi1975]

Sir, Thank you.

[@NokwandaShazi-g5i]

Is marginal costing standard costing if not what is the difference ?