Annotated Bibliography Apa Format

In the case, it is more advantageous to use absorption costing than the variable costing because it is a simpler method of providing accurate record for the external reporting for a highly unstable manufacturing volume in the manufacturing company. More importantly, the absorption costing provides more accurate picture of cash flow of an organization since the organization will add unsold product to the sale mount of the next fiscal year. (Walther, 2013).With the absorption costing, the organization will be able to transfer the cost of inventory to the costs of goods sold making the organization to reduce the gross profit. The rational behind using the absorption costing is that firms will be able to measure the products as complete costs. (Noreen, E.W. Brewer, P.C. Garrison, R.H. (2013).

In absorption costing, all manufacturing costs, both fixed and variable, are assigned to units of product. Units are said to fully absorb manufacturing costs. Most countries require some form of absorption costing for both external financial reports and for tax reports. Also, most companies across the world use absorption costing in their management reports. It is the most common approach to product costing throughout the world. It is also known as Job-Order Costing.

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. Requisition of such models is authentic for offices generating goods with less differing qualities. In any case, as manufactured goods differ, the wide averaging methodology prompts severe cost variations

I recommend that we use absorption costing over variable costing. Absorption costing is a method where “…fixed manufacturing costs are inventoriable costs” (Datar, et al, 2009). That is, inventory “absorbs” all manufacturing costs. In the absorption metho there does not need to be a distinction between fixe and variable costs.

According to the case, cost control can be improved with the adoption of variable costing. Although costs can also be controlled when using absorption costing, it is easier to distinguish on the income statement which costs are variable and which costs are fixed when using the variable costing method. Since variable costs and fixed costs are controlled in different ways, it is useful to be able to analyze the costs separately in order to control

attrition), and much of the machinery can be sold off or not replaced as it

Costing is essential for every organization, as every manufacturing and other department has to be assigned accurate budget for proper operation (Hansen, Mowen and Guan, 2006). The costing system provides information that is useful to managers for minimizing wastage and allocating resources to different departments.

The objective of this note is to analyse the costing system used by our company. This article is specified in the following aspects: explaining why direct labour hour is not an appropriate basis for assigning overhead in traditional costing system, identifying the key drivers of manufacturing overhead, discussing pros and cons of using activity-based costing system and giving recommendation on product pricing.

Target costing is a system of profit planning and cost management. The required features and performance of the proposed product are established. Then target costing determines the life cycle cost at which the product must be produced, to generate the firm’s desired level of profit. Given the product’s anticipated selling price (Cooper and Slagmulder,1999, p.166). Note that target costing is not a method for product costing , it is a technique for cost management. It was devised in Japan, where it is used widely, particularly in automobile, electrical and equipment-manufacturing industries (Lorino, 1995). With the effect of globalization, it is gradually gaining acceptance in the Western world.

From the point of view of a business, cost is an important aspect for managers to assess a company’s performance. Based on definition of costing system, it is that system in which people calculate different cost with different methods and also monitor cost for reducing wastage and misuse of resources (Accounting Education, 2015). Therefore, company can use costing system to control cost of material and cost of labour force in order to increase company’s profits. The purpose of the essay is to provide background knowledge about costing system and how does it influence on companies. This essay will introduce effects of costing system from two different ways, which are costs and benefits.

This brief report will cover various definitions of dissimilar types of costing such as Marginal costing and more. It will also aim to provide examples where necessary to explain the definitions more clearly and in detail. As following this introduction, there are a few different types of costing methods well defined and analysed in order to help with decision making. The purpose behind costing is to determine the value inventory as the cost per unit can be used to value stock in the statement of financial position. It could also record the costs associated with the product need to be recorded in the income statement. Costing also assists with pricing products as the organisation will use the cost per unit to assist in pricing the product.

For a company making regular production and sales, with equal quantity of units each period, absorption costing will show the real cost of goods sold. If the production and sales are irregular, this approach will reflect that variable costs and fixed overheads change according to the sales. The fixed overhead costs won’t have any effect due to the level of production or sales but, variable costs will be affected by the level of production or sales. For a company having fluctuations in the level of sales and production, variable costs provide a better picture of costs to be incurred in order to run a business unit.

Traditional method tends to use arbitrary allocations that are not significant determinants of the costs. On the contrary, ABC mainly uses cause-and-effect allocations as significant determinants of the costs and refrains from arbitrary allocations. Therefore, cause-and-effect allocations should be used to get accurate assignment of indirect costs to cost objects. Figure 1 below describes the different types of product costing systems.

Cost accounting information play a crucial role for manufacturing organizations in making internal decisions. It is important for management to understand the cost implications of any decisions that they make for their organizations. Managerial accounting under which cost accounting lies, provides the management with a break-down of internal manufacturing and operational costs that help them in making the right decisions for their organizations. Some of the decisions that are made using cost accounting information include pricing decisions, production quantity decisions and inventory management decisions. It is important for manufacturing firms to monitor internal costs and control them in order to realize profits. This presentation will

In this paper we extend the costing approaches and the two different approaches which include Variable costing and Absorption costing. This paper explains the difference between variable costing and absorption costing. All successful companies around the world use a strategic business plan that leads to a tactical plan and an operation plan which lead to the execution; both of the costing approaches, variable and absorption costing, to help their business flourish. Variable costing and absorption costing are not to be substituted for one another since both the approaches have their own benefits and limitations to any unique situation. In this document we will discuss the different approaches variable and absorption costing uses, the