Costing

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how to treat administrative cost in both absorption and marginal technique if new offer to be accepted separately from normal production
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In marginal costing Administration cost is committed cost hence irrelevant in acceptance of offer whilst in absorption costing it has to be allocated over the units to be produced in new offer to arrive at cost per unit.

Administrative cost is fixed cost/unavoidable cost, so it is sunk cost and irrelevant for decision making.

 


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