Shaping Futures with Knowledge
| Basis of Comparison | Managerial Costing | Absorption Costing |
|---|---|---|
| Definition | Managerial costing involves cost data for internal decision-making, planning, and control. | Absorption costing includes all manufacturing costs (fixed and variable) in product cost. |
| Purpose | Used for internal decision-making and strategy planning. | Used for external financial reporting and statutory compliance. |
| Cost Inclusion | Focuses on relevant, opportunity, variable, and marginal costs. | Includes both fixed and variable manufacturing costs in product cost. |
| Focus | Profit planning, decision support, and cost control. | Full cost reporting for financial statements. |
| Inventory Valuation | Often excludes fixed costs from inventory valuation. | Includes fixed costs in inventory value. |
| Compliance | Not governed by accounting standards like GAAP or IFRS. | Required by accounting standards such as GAAP and IFRS. |
| Flexibility | Flexible and adaptable to business needs and decisions. | Follows strict accounting rules and standards. |
| Decision-Making Use | Very useful for short-term and operational decisions. | Less effective for internal decisions; better for long-term costing. |
| Example of Use | Make-or-buy decisions, budgeting, pricing strategy. | Preparing profit & loss statements, balance sheets. |
