In contrast to this, marginal costing, which is also called variable costing, takes into account only the variable cost as product cost for the calculation of profit. The profit calculation under this method involves two stages, namely contribution and profit. Contribution is the difference between sales proceeds and variable costs. The calculation of contribution is essential in certain types of firms where there are many period costs and also it is necessary to calculate the costs of each product and / or department or process. Once contribution is ascertained, the next step is the computation of profit of the business, which represents the overall profits of all product, department or process, by deducting fixed expenses from the contribution so achieved. If the contribution exceeds the fixed costs, the resultant figure is known as profit. When it is negative, the firm is incurring a loss. There are also chances of both contribution and fixed expenses being the same, such a situation is called no profit no loss point or technically, break-even point.
Under absorption costing, all costs whether fixed or variable are treated as product costs. The cost units are made to bear the burden of full costs even though fixed costs are period costs and have no relevance to current operations. Under the marginal costing technique, however, only variable costs are treated as product costs and the fixed costs are transferred to costing profit and loss account in full to be deducted from the contribution to ascertain profit/loss
Under absorption costing technique, inventories of work-in-progress and finished goods are treated at full costs, while marginal costing values finished and work-in-progress inventory at their variable cost. Naturally, the method of valuation has the effect of carrying over fixed cost to the subsequent period under absorption costing and this will not happen in the case of marginal ...
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1. Activity Based Costing (ABC) is the perfect cure for the problem of overhead allocation within organisations. Critically evaluate this statement.
In general, activity based costing (ABC) has been largely described as an alternative method of allocating overhead costs based on logic rather than arbitrarily imputing cost entirely to resulting production output.
The allocation of overheads has always been a matter of concern in manufacturing businesses especially in recent times. The method used in allocating overheads plays a role in the determination of the comparability of the costs of doing business vis-à-vis the cost to competitors.
Financial accounting mainly focus on summaries past financial dealings which are reported periodically in contrast, management accounting evaluate past, present and future information which are reported continually to be used in making appropriate decisions.
Accounting for decision making Contents Contents 2 Introduction 3 Effectiveness of Traditional and Activity Based costing system 7 Effectiveness of Traditional Based costing system 7 Effectiveness of Activity Based Costing 10 Conclusion 13 References 14 Introduction Costing systems are types of information systems which require a particular type of information like the number of units produced and the number of direct labour hours of value that are involved in the process. These data are put as input into the costing system and the specific methodology of the costing system is used to produce information like the cost of the product and other important information as the output. The same da
TABLE OF CONTENTS Executive summary 2 Assumptions of marginal costing 3 Uses of marginal costing in short term decision making 3 Types of costing methods 4 Marginal costing absorption method 5 Advantages of Marginal Costing over Absorption Costing 6 Recommendation 7 Conclusion 7 Costing is one of the managerial accounting functions which needs a careful selection and evaluation of the effectiveness of every technique used by a firm.
E-banking has a different set of processes and cost objects are significantly different from those of traditional banking system. For the same reason traditional accounting has not been able to provide an appropriate pictures of costs and thus it was based on gut feeling.
It has been observed that ABC method is the most sought after innovation in the field of management accounting in the last two decades. The method was originated in the Unites States of America during the 1980s as an improved system to enable better cost allocation by means of classification of more costs as direct
by increasing the production of the product and as such produced 45,000 units with a thought that by putting the pressure, the selling agents could push the products more than the estimated sales into the market. However, only 20,000 units could be sold for which the profit
sically encompasses the estimation of the costs of goods and services so as to provide information to management and facilitate management decision making. As such in deciding between various costing methods one must keep the ultimate objective in mind: which method is most