S1: Marginal costing distinguishes between fixed and variable costs. S2: Absorption costing distinguishes between fixed and variable costs. Which statement(s) is/are correct? MCQ with Answer and Explanation
S1: Marginal costing distinguishes between fixed and variable costs. S2: Absorption costing distinguishes between fixed and variable costs. Which statement(s) is/are correct?
A. S2 only
B. Neither S1 nor S2
C. S1 only
D. Both S1 and S2
Answer: Option C
Solution (By JKSSB Mock Tests)
Marginal costing strictly separates costs into fixed and variable components. Absorption costing (traditional costing) charges all manufacturing costs (both fixed and variable) to the product, without this strict separation for decision making. S1 is correct, S2 is incorrect.
Explanation:
Interest on drawings is an appropriation of profit in sole proprietorship? Actually in sole proprietorship, drawings are not subject to interest unless specifically decided for managerial accounting. But in financial accounting for sole traders, interest on drawings is not charged to P&L. It reduces capital directly if considered. So it does not affect net profit. Others affect P&L.
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