Written Assignment – Unit 5
In economics, when we are trying to fully understand the cost of our decisions, we don’t only analyze the monetary costs but also what we have to give up in order to make our selection. Monetary costs are referred to, in the economics world, as explicit costs, and are typically easy to analyze (OpenStax, 2014). It’s the items or even time that we must give up, that are a bit more difficult to quantify. These costs are referred to as implicit costs (OpenStax, 2014). In the business setting, these could be the use of company owned resources or even the business owners time. As an example, the explicit costs of my traveling notary public business are easily quantified. They typically include insurance, a notary commission, gas for my vehicle, and notary supplies. However, in order understand the full cost of my notary business, I must also take into account the implicit costs. These costs include the additional miles that I have put on my vehicle going to client’s homes, and the wages I
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I would need to review the cost of rent and utilities of a storefront versus the additional utilities and the cost of renovating my storage room to have an at home location. These explicit costs would not be the only thing I would need to factor into my decision. I would need to examine the implicit costs of no longer having a storage room. When evaluating my choices and options for my notary public business, the main question that must be asked is “what is my profit going to be?” The answer to this question is contingent upon what profit am I worried about, the accounting profit or the economic profit. The accounting profit is the effect of total revenue and explicit costs, whereas the economic profit is the effect of total revenue, explicit costs, and implicit costs (OpenStax, 2014). A company may have an accounting profit but be economically unsuccessful, based on its economic
[3] Robert S. Kaplan and Steven R. Anderson, Time-Driven Activity-Based Costing: A Simpler and More Powerful Path to Higher Profits, Harvard Business Publishing, Boston, Mass., 2007.
[4] Colin Drury, Management and Costing Accounting, (7th edition), Chapter 3, Cost Assignment, p. 54-59
The board of directors must also be aware of the accounting requirements for income taxes. Income tax preparation is based on the amounts shown in the association’s fi...
For instance, the profit making health organizations have the main intention of creating profits for the shareholders while the nonprofit organizations are created to further their mission (Knowing the Differences Between Nonprofit and For-Profit Accounting , 2015). Just the way these organizations differ in their purpose and foundation, they also differ in their accounting procedures. Their financial statements are presented in different ways. The financial statements prepared at the end of a year are also very different. The main reason for these differences is because the two organizations follow different accounting standards. In this part, I will lay an explicit focus on how the two organizations present the various items in the owners’ equity statement (Baker,
In the John Deere case, they were calling a lot of things overhead that weren't truly overhead (e.g. scrap, which is probably proportional to the amount produced). We discussed with my group how the internal transfer pricing arrangement probably encouraged the managers to think this way, since it awarded contracts on the basis of direct costs but, by the books, the actual transfer price was supposed to be the full price. In summary, the John Deere case was an exercise in thinking about how not to make pricing decisions.
As with any kind of business formation, there will always be, to some extent, negative aspects associated with the creation. To this date there is no perfect form of business entity. When deciding on which entity is best suited for a business, there are many things to be considered. Prior to deciding on a business structure, some major points to be thought about are both the legal and tax ramifications associated with the entity chosen. Another criteria that should be considered are the costs connected with the entity type. These cost include the cost of formation as well as any continuing administrative cost that may be incurred. (“Choose Your Business,” 2011)
Companies. Retrieved July 4, 2008, from University of Phoenix, MMPBL-501 Web site. University of Phoenix . ( 2008). Economics for Managerial Decision Making
Treating overhead costs as "fixed" can cause an unfair and highly misleading distribution of overhead costs which are in fact variable.
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.
Where x is the quantity/output, Ci is the total cost, and U is the utility. A firm's action can have a substantial effect on the other.
In a significant step towards convergence, the FASB and IASB (“the Boards”) issued the Exposure Draft, Revenue from Contracts with Customers in 2010. The goal was to create a single joint revenue recognition standard that companies could apply consistently across industries and capital markets thereby improve financial reporting. The Boards highlighted a number of improvements in the proposed standard - removing inconsistencies, improving comparability, requiring enhanced disclosures and clarifying the accounting for contract costs. Instead of focusing on “realized/realizable” and “earned” the Exposure D...
Perhaps one of the most fundamental principles of Microeconomics is that people face tradeoffs. According to Mankiw, “making decisions requires trading of one goal against another.” This situation of facing tradeoffs stems from the concept of scarcity - which in essence is limited resources - forcing one to make decisions and tradeoffs between several options. A concept well associated with this is opportunity cost - which is defined as how much one has to give up (the cost) in order to get the good or service (generally the alternative desired or wanted). Opportunity cost is also commonly defined as “the value of the next best alternative in a decision.” This concept of opportunity cost may be difficult to grasp as a bare definition but applying it to a situation may simplify and clarify the concept allowing a more universal understanding of it. To better our understanding of this concept, let us analyze the following scenario and assess the opportunity cost associated with it.
Every company has some kind of Revenue and they all have costs that are associated with running the company. It is also true that if a company wants to increase their Revenue, their costs will increase too. It is every company’s goal to maximize revenue and either through Production or Services, and minimize cost. These things are easy to figure out, but actually identifying the production and figuring out how it will increase or decrease with change is very difficult.
Job costing involves usage of situations where every job is done cost differently, consumers specifications play a bigger picture in this case. Direct and indirect costs are encountered. It is believed that job costing has lots of costs accrued from the production to the consumers (REEVE, J. M., WARREN, C. S., & DUCHAC, J. E. 2012). This involves labor, running of machines, and all the individuals who are involved in the production of a product from raw to the final product, indirect costs are applied in this order. Job costing order is best showcased in a manufacturing company, let’s take coca cola company, company specialized in beverages manufacturing and distribution, usually customers have no say in the final products of this company, but as the trends for consumption of a certain flavor, according to their statistics they will conform with the demands. The special requirements, like name branding on the bottles of the beverages, customization of the containers have had a significant impact in the consumption of coca cola products (Weygandt, J. J., Kieso, D. E., & Kimmel, P. D. 2010).
The success of a company is very dependent upon its financial accounting. In accounting there are numerous Regulatory bodies that govern the accounting world. These companies are extremely important to a company because they set the standards when it comes to the language and decision making of a company. These regulatory bodies can be structured as agencies, associations, commissions, and boards. Without companies like the Security and Exchange Commission (SEC), The Financial Accounting Standards Board (FASB), the Governmental Accounting Standards Board (GASB), Internal Accounting Standards Board (IASB), Internal Revenue Service (IRS), and other regulatory bodies a company could not make well informed decisions. In this paper the author will look at only four of them.