Absorption/Full Costing, Variable/Marginal Costing, and Activity Based Accounting

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Introduction 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 ... ...pp. 490-497. 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.

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