Difference Between Variable Costing And Absorption Costing

Assuming that the company’s goal is to maximize profits, the current cost system is not an appropriate tool for strategic planning. The ambiguity of the overhead costs per product makes it difficult to accurately analyze the cause and effect relationships of changes and/or improvements to specific product line.

3389. Marcye Co. manufactures office furniture. During the most productive month of the year, 3,500 desks were manufactured at a total cost of $84,400. In its slowest month, the company made 1,100 desks at a cost of $46,000. Using the high-low method of cost estimation, total fixed costs are:

The account issue addressed in this case study was whether to continue with the existing costing method for each product line or implement a activity-based costing method. The ABC method allows for an organization to allocate direct and indirect costs to products and obtain an accurate level of costs and profit for each unit produced, thus allowing the company to improve their overall operational effectiveness. ABC does differ from the existing costing method described in the case as the old method does not account for volume related overhead costs which must be allocated to the specific ODD and TGC products.

This paper provides a brief presentation of Activity-Based Costing methodology, how is used as well as its short comings.

To effectively plan overhead costs for a product the management must aim to eliminate activities that do not add any value to the product in question. The process of costing is very important in that it supplies information on evaluation and control to various aspects of a business enterprise. Variance measures price and quantity differences that occur in any budgeted and actual prices and quantities. There exist a difference between fixed overhead spending variance and variable overhead spending variance in that the fixed overhead spending variance does not include estimation error while variable spending variable does.

The author was able to provide a detailed aspect of variable costing with clear emphasis on the importance of variable costing. According to the author, differentiating between fixed and variable costs is the first step in controlling costs. The article is helpful in understanding cost relationship and its correlation to cost absorption in manufacturing

Various terms are used to describe costs. Having an understanding of these terms will provide a better insight to managers and companies on making budget decisions, efficiently. Not only the ones described above should be considered, but also all types of costs related to the decision in effect. Efficient managers will considered all aspects related to the analyses in question.

Session 1 Date September-4 Topic Introduction, overview, group assignment, product costing systems (concepts and design) Process costing systems Managing and allocating support service costs Inventory decisions Strategic issues in investment decision Managing quality and time to create value Midterm Exam Cost management and strategy The nature of management control systems Understanding strategy Strategy, balanced score card, incentive systems Organizational design & responsibility accounting Case presentation Case presentation Case presentation Case written report is due at the beginning of session 13 Final exam Chapter 1 (H) Chapter 1 (A) Chapter 2 (A) Chapter 20 (H) Chapter 18 (H) Reading Chapter 2 (H)

Cost analysis: fixed versus variable costs direct versus indirect costs; traditional costing and activity based costing

The distinct differences between the two methods is what causes the net operating income to be so different. One of the main distinctions between the two is the use of the fixed manufacturing overhead per unit. Under variable costing, manufacturing overhead is treated as a period cost and is reported on the income statement

Fixed costs are constant and have an impact towards profits despite the number of items sold. Reducing the fixed cost amounts is a sustainable way to make more profits and increase operating leverage (Edmonds & Tsay & Olds). Suggested by Reiss, outsourcing is a way of turning fixed costs into variable costs. Variable costs have a dependence of cost based on production or sale of the product (Reiss, 2010).

INTRODUCTION Businesses – from manufacturing, merchandising and service industries alike – take careful consideration in the analysis of their costing systems in order to be able to set up competitive prices in the market. Misallocation of costs may lead to incorrect price estimates, continuous production of unprofitable products, and ineffective processing schedules. In this case study, we will discuss the costing methods which Zauner Ornaments have used or is currently using and, in conclusion, be able to distinguish the advantages and disadvantages of each costing method. CASE CONTEXT The case seeks to assist Zauner’s comptroller, Yu Chia-yi, in determining the best costing method for their overhead costs. In addition we also aim to

In cost accounting, the lack of understanding of the accounting and finance process by the business manager is an incentive for the unethical employee to manipulate the system. Ethics help management in: · Providing factual and true information to its users, · Determining the nominal price of its products, · Maintaining appropriate professional relationships, and · Maintaining efficacy In today?s world of corporate scandals, an appreciation of ethical standards and a commitment to the proper reporting and disclosure of financial information needs to be constantly reinforced within the area of accounting. Absorption and Variable Costing: Absorption Costing: All costs (fixed and variable) of production are product costs. Which means under absorption costing, both variable and fixed manufacturing costs are included as a part of the cost of the product manufactured.

Nowadays, we know that activity based costing system assigns overhead costs to products or services products that using a two-stage process, which focuses on activities. ABC is a relatively new and very important topic in managerial accounting. ABC allows us to find a way that we could determine the profitability of every product, profitability of every customer we serve, and the profitability of our process. Contents in brief, first that comparing potential advantages of ABC versus traditional costing methods. The

Target costing originated from Japan in 1960s though; it was not really the first approach to product costs determination. The first idea to determine product costs can be found as early as beginning of the last century at ford in the United States, and development of Volkswagen Battles in Germany in the 1930s.with a fixed product price in order to be affordable for all people (Arnaout, 2001).