on a short term basis, such as Accounts Receivables, Cash and Cash Equivalents, Notes Receivables, Materials Inventory, and temporary marketable securities, to name a few, they are categorized as “Current Assets.” The second major category of a Capital Expenditure is the “Fixed Assets.” These are assets held on a long-term basis, such as land, buildings and improvements, machinery, furniture and fixture, They are items of value, needed for the normal operations.
The next useful Financial Report that is needed by any business organization is the Income Statement, which clearly shows the calculation of the profit or loss. When the revenues, which may be in the form of goods or services sold to customers can be ascertained at any given period, it is usually accompanied by costs and expenses. If the benefits derived from any asset or capital expenditure is exhausted within a year, it becomes an expense or revenue cost.
Revenue costs consist of Direct Cost and Indirect Cost. Examples of Direct costs are the Labor and Material costs that are part and parcel of the products for sale. Indirect Costs are incurred in the process of asset consumption or for services rendered, examples of which are depreciation, rent, wages, salaries, heater, light, water and phone.
The key issue between absorption costing and marginal costing is how the costs of a business’s input resources are best organised and presented so as to identify individual product/service and total business profit. Specific order costing methods will frequently deploy full absorption costing, one reason for this is that the pricing of each unique piece of work will invariably make reference to the total costs incurred. Continuous costing methods are more likely to deploy marginal costing because of the opportunites in such an environment to use cost-volume-profit analysis (Coulthurst, Nigel “Process Costing,” Students’ Newsletter, Jan. 2000).
By using marginal or absorption