What is main distinguish between marginal costing and obsorption costing?

Main difference between these to accounting system is the treatment of Fixed cost...

absorption costing absorb (include the fixed cost to unit prise on some reasonable basis)

marginal costing only include variable cost to unit cost (cost of sale) of a product and treat fixed cost as period cost (charge t profit and loss account)..

very basic example would be,,,

a person John made a chair with wood, some glue and few nails.. these material cost him $ 20 / chair

.. the rent he paid for the workshop is $ 50 a day(fixed cost, as he have to pay either he sale any chair or not),,,

so he want to sale it at least a chair @ 20+50= $ 70

another person Locke at his neighbor with same cost sold the chair for $ 40 only.. charging $20 for material and $ 20 as contribution..

so from whom you would buy?

obviously form Locke.because its cheaper....

but is Locke crazy.. who is going to pay his rent???

the answer is .. if he manage to sell 3 chairs per day which he can do easily because he is selling cheaper the the profit he earns would be as follows...

total contribution $ 20/chair * 5 = $ 100 (means gross profit after all material cost of 5 chairs)

rent per day = $ 50

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he earned a profit of = $ 50 a day after paying all costs...

this is the simplest difference between marginal and absorption costing system

john is using absorption costing and Locke is using marginal costing...

if Locke sale 3 chairs then unit cost per chair would be

total rent 50

total chair manufactured 3

fixed cost per unit 50/3 = 16.67

now the total cost per unit is (VC 20 and FC 16.67) = 36.6

sale prise of 5 chair in competition 40*5 = 200

cost of 5 chair 36.6 * 5 = 183

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profit 17

with same business and with same sales volume and costs...they reporting different profits