| Advantages of absorption costing | Advantages of marginal costing |
| Complies with ias 2 “inventories” | Contribution per unit is constant over different sales volumes |
| Better cost control due to analysing under-/over- absorption | No over- or under- absorption |
| Recognises that selling price must cover all costs | Highlights contribution so appropriate for decision-making |
| Profit depends on sales and efficiency not on production levels |
| Simple to operate |
| |
| Disadvantages of absorption costing | Disadvantages of marginal costing |
| Profits can be manipulated by changing production levels | Contribution may not cover fixed costs |
| It is based on the assumption that overheads are volume-related | Does not comply with ias 2 |
| Fixed production overheads are not shared between units of production but written off in full |