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Average Costs and Variable Costs as Performance Measures
Finance & Accounting
Pages 3 (753 words)
According to Pride and Kapoor,Cost Accounting involves such processes as the collection, analysis and evaluation of certain courses of action in order to offer invaluable advice to the management on the best way to act regarding cost efficiency versus capability
Through cost accounting, the management can understand the management needs and in this regard control the current operations as they plan. Normally, in every accounting environment be it within an organization or the government institutions, there are costs of production that include the fixed and the variable costs (Drury, 2008). While fixed costs do not vary with the output like rent, insurance, and depreciation, variable costs as their name suggest, are under constant fluctuation depending on the output for example fuel cost, labor costs, and cost of materials. Average costs on the other hand are obtained by dividing the costs by the output (Pride, Hughes & Kapoor, 2012). Although the average costs and the variable costs may at times be unpredictable, managements can make use of the costs to measure the performance of the organization as well as the managers. The manager of the manufacturing unit in a company is responsible for the costs of the manufacturing unit (Drury, 2008). In this regard, quality, timely delivery, and cost measures are used to reward the manager’s performance. However, there are problematic areas associated with the process of deciding whether to evaluate the manager of the manufacturing unit by average cost per unit or the variable cost per unit (Sharan, 2009). ...
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