Discuss the techniques of Absorption Costing and Marginal Costing using a suitable example.

Absorption costing and marginal costing are two essential techniques in managerial accounting that help managers in decision-making, cost control, and profitability analysis. These methods differ in how they treat fixed costs, influencing the assessment of product costs and financial performance.

Absorption Costing
Absorption costing, also known as full costing, allocates all costs, including both fixed and variable overheads, to the cost of a product. This method ensures that every unit of production absorbs its fair share of both variable and fixed production costs. Absorption costing is typically used for external financial reporting as it aligns with Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Standards (IFRS).

Key Features:

1. Inclusion of Fixed Overheads: Fixed manufacturing overheads are treated as product costs and absorbed into the cost of inventory.
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