The contained paper has been prepared with objectives of elaborating over the three different costing methods namely, Absorption/Full Costing, Variable/Marginal Costing, and Activity Based accounting. The first segment of the report seeks to define and illustrate the costing methods based on the personal understanding of the writer gained through the class room and the academic readings. Part two of the report takes a form of short essay, written critically to evaluate the application of standard costing and variance analysis to any size of business, and concludes with a verdict that whether or not standard costing and variance analysis is applicable to each business with consideration of its costs and benefits of the system.
1.0. Part B – Costing Methods
1.1. Marginal/Variable Costing
Term “marginal” is extensively used and known with reference to the economics which means “extra”, whereas with economic view point the marginal cost is the cost of producing every extra unit; however the accounting terminology of “marginal” defines the cost incurred on production other than its fixed cost is the marginal cost. Simply, none of the technique is applied unless it serves the benefits and the marginal costing is used by the firms for its registered benefits. Among all its benefits the primary advantage it serves is its attempt to distinguish the fixed and variable costs, and the method only considers the related variable costs to be included in production cost and the fixed costs are thus later deducted out for ascertaining net profit. The inventory at the year-end is also valued on the bases of variable cost. With all these beneficial characteristics of the said system firms using marginal costing are clearly aware of its ...
... middle of paper ...
Rishinek, A., 1983. Control Aspects of Standard Costing: Variance Analysis, Inflation Adjustment, The Learning Curve and their Computer Applications. Managerial Finance, 9(1), pp. 14-18.
Sulaiman, M. b., Nik Ahmad, N. N. & Alwi, N., 2004. Management accounting practices in selected Asian countries: A review of the literature. Managerial Auditing Journal, 19(4), pp. 493-508.
Sulaiman, M., Nik Ahmad, N. N. & Alwi, N. M., 2005. Is standard costing obsolete? Empirical evidence from Malaysia. Managerial Auditing Journal, 20(2), pp. 109-124.
Talbott, J., Brack, L. & Lee, J., 1988. Variance analysis in a service business. Strategy & Leadership, 16(3), pp. 36-40.
Zoysa, A. D. & Herath, S. K., 2007. Standard costing in Japanese firms: Reexamination of its significance in the new manufacturing environment. Industrial Management & Data Systems, 107(2), pp. 271-283.
Need Writing Help?
Get feedback on grammar, clarity, concision and logic instantly.Check your paper »
- Introduction Activity-based costing (ABC) is a costing method that is designed to provide managers with cost information for strategic and other decisions that potentially affect capacity and therefore “fixed” as well as variable costs. Activity-based costing is mostly used for internal decision making and managing activities while traditional costing method is used to provide data for external financial reports. Most organization uses activity-based costing as an addition system for using traditional absorption costing as sometimes the traditional cost system misleads the product’s profitability.... [tags: Costing Methods, Cost Information, Managers]
1171 words (3.3 pages)
- In this section of the report, we shall discuss the interlinked processes of Activity Based Costing, Activity Based Budgeting and Activity Based Management by using the help of certain diagrams and also touch upon the evolution of the Activity Based approach over time. The diagram shown above explains how costs are assigned to a product under the ABC approach. ABC first assigns costs to the activities that are the real cause of the overhead and then assigns the cost of those activities only to the products that are actually demanding the activities.... [tags: activity based, costs, abc approach]
1326 words (3.8 pages)
- Activity-Based Costing ( ABC ) Summary The business environment in the 1990s is markedly different from that of the past when conventional cost accounting procedures were established. Activity-based costing (ABC), pioneered in the late 1980s, offered a new costing approach consistent with the changed environment. However, ABC did not diffuse rapidly into the business community. This article demonstrates why adopting ABC is important by documenting the potential of ABC in supporting contemporary managerial decision making.... [tags: Essays Papers]
3359 words (9.6 pages)
- Cost and management accounting is an integral element in preparation of an entity’s financial reports. Cost accounting consists of various branches, including; job and process costing, absorption costing, traditional costing and activity based costing. An efficient costing system allows managers and other users of financial reports to make decisions to better the company, in reducing and stream-lining costs, to improve overall profits. The way in which managers achieve this can be a rigorous and time consuming task, however, if a costing system can be perfected, productivity and general cost reduction can be achieved and an overall more efficient operation of the business will ensue.... [tags: financial reports, absorption, business]
1894 words (5.4 pages)
- One of the basic parts of cost accounting is to gauge the cost of tangible or intangible product or service. All costing models are attempting to discover the "correct" cost 1.e actual cost without any cost variances for all cost objects, for example, product, profit, segment, and division. costing methodologies all over the world apportion overhead by utilizing volume- driven measure, for example, unit transformed to first gauge a foreordained overhead rate then assign overhead by applying this normal overhead rate to the cost object.... [tags: Cost Accounting]
1785 words (5.1 pages)
- Activity Based Costing ACTIVITY BASED COSTING AND MANAGEMENT : AN OVERVIEW Activity Based Costing (ABC) is more relevant than traditional costing in companies, where product mix is diverse in; batch sizes, physical sizes, degree or complexity, and raw material characteristics. ABC will also provide more decision useful information for the service industry, characterized by diversity in range of services provided. If the products in a plant or services provided posses similar characteristics, wither volume based or an activity based cost driver will provide reasonably accurate costs.... [tags: GCSE Business Marketing Coursework]
1441 words (4.1 pages)
- Introduction Activity Based Costing (ABC) addresses internal operating concerns and is an augmentation to the traditional cost management system. It is not a replacement for traditional accounting, but makes use of the source documents provided from standard job costing systems. ABC looks at a business unitâ€™s events as cost drivers and assigns all company resources and accumulated costs against those events in a time-phased sequence. Revenue tracking provides management with a different point of view on the profitability of products and services, providing insight into pricing.... [tags: essays research papers]
940 words (2.7 pages)
- Absorption costing is defined as a method that includes all manufacturing costs, such as direct labor, indirect labor, variable overheads and fixed overheads. This approach also as called as full costing approach. Nowadays, a lot of companies use absorption costing method for external financial reporting purpose, matching concept is used in absorption costing. Assets like inventory affects the company’s ability to earn more profit, so in accounting field it match the expenses with the revenues that they produce is important.... [tags: companies, finances, manipulation]
720 words (2.1 pages)
- There are many methods businesses can use to measure cost. Cost is an essential piece to a business since cost ultimately affects if the business can continue to make a profit. The ultimate goal is for a business to make a profit, so using the correct cost management method is important. This way cost can be calculated as accurate as possible. Two cost measurement methods are activity based and job based costing. This paper will compare and contrast those two methods as well as describe the benefits of each method.... [tags: Job Order Cost Accounting]
863 words (2.5 pages)
- Debate between Job Order Costing and Process Costing Table of Content PART 1 INTRODUCTION 1 PART 2 COSTING SYSTEM 2 1. Job Order Costing (JOC) 2 2. Process Costing (PC) 3 PART 3 ACCOUNTING METHODOLOGIES 4 1. Last-In-First-Out (LIFO) 4 2. First-In-First-Out (FIFO) 5 3. Comparison between LIFO and FIFO 6 PART 4 CASES STUDY 7 Case 1 – Law Firm 7 Case 2 – Furniture Manufacturing Industry 7 Case 3 – Bakery 8 PART 5 CONCLUSION 9 PART 1 INTRODUCTION This report to distinguish between and identify companies that may use the “Job Order Costing” and “Process Costing” which are the major types of costing systems that used in manufacturing and service company.... [tags: Accounting Finance Business]
1898 words (5.4 pages)