Advantages

 entities which use absorption costing for all products costing have an advantage in that the
same costs can be used for all purposes since it complies with IAS 2
 the technique ensures coverage of fixed cost by allocating fixed cost to a product hence it
recognizes that selling price must cover all costs
 absorption costing considers fixed factory overhead costs to be inventoriable because
production could not take place without the incurrence of fixed factory overhead
 it is costeffective and less confusing to sole trader to use one common method of inventory
costing for both external and internal reporting and performance evaluation of the business
 absorption costing measures the cost of all manufacturing resources, whether variable or
fixed, necessary to produce inventory
 it takes into account very important fact that fixed cost can be ignored in short period but it
is to be et in long run decision

Disadvantages

 technique does not aid sole trader in decision making process whenever encountering with
the problem of product mix, pricing decision and temporary stoppage of production activity
since it is based on assumptions
 profits can be manipulated because uniform unit cost is available only at constant level of
production and different unit costs is available at different level of output


Conclusion

All the above discussion provides a strong reason for including fixed cost in product cost for stock
valuation and in such case, the advocates of absorption costing are found on solid ground. However,
it really shows a betraying picture in cases of fluctuation in production and sales and here the
advocates of marginal costing technique are found lying on solid ground by arguing that profit is a
function of sales not production. But both absorption costing and marginal costing affect in cases of
merely production not sales or inventory fluctuation, shows that it could mislead Billy Hargreaves
because only a cost accountant better knows that what does a financial statement means and what
lies beneath these figures is difficult to understand.

Therefore, we conclude that marginal costing technique is better costing technique, which could
help Billy in decision-making and to better understand the position of the business. However, this is
also suitable for only short period as the discussion prove the importance of fixed cost as product
cost in long run. So, it is suggested that both the costing technique have advantages and
disadvantages and totally depended upon situation or capacities of Billy’s business. Therefore, no
chance of exploitation or misleading occurs.