Variable Costing and Samanta Shoes - Research Paper Example

Variable Costing and Samanta Shoes There are different types of costs that will explain the wide range of the shoe selling prices. Production costs are influenced by the range in the prices of materials. If the materials cost are high, the prices per pair will increase, therefore explaining the range in prices in the different shoe pairs.Labor costs are directly proportional to production costs. Increase in the availability of workers will lead to a decrease in labor costs; hence production costs.

Lower labor costs will lead to a decrease in shoe prices. The amount of labor will, therefore, influence the price of each pair explaining the disparity in shoe prices.Transportation costs are directly proportional to production cost. Transportation of raw materials from one area will affect the shoe price. Materials that are outsourced from remote locations will, therefore, increase the price of the shoe.Research and development costs are directly proportional to the production cost of shoes.

Increased research and development will lead to higher shoe prices. Manufacturing of new shoes based on intensive research will also lead to increased shoe prices.2. Founders’ decision making is mainly influenced by the variable costing method that is mainly affected by production levels. Variable costs are directly proportional to production levels. Absorption costing allows incomes to increase as production levels rise. Use of absorption costing by the management artificially inflates the incomes of the company (Horngren, Datar, & Rajan. p 45). Absorption costing in the period of production depicts that fewer costs are incurred and more income for the company.

Samanta Shoes’ decision to use absorption costing shows that income will be more as compared to the founders’ use of variable costing method.Works citedHorngren, Charles T., Srikant M. Datar, and Madhav V. Rajan. Cost accounting: a managerial emphasis. 14th ed. Upper Saddle River, N.J.: Pearson/Prentice Hall, 2012. Print.