6DAcerAcer Aspire One 725Activity-Based CostingadvantagesadvertisingAgribusinessair freightallergyandroidantennaappapp centerapp developmentappleApple IaquantiveassaultauctionAutomotive Marketbabybaby photosbarrack obamabigthingbiolite stoveBlackberryblocked usersBookkeepingBraviabrowserbuffalobugbusinessbusiness ethicBusiness TechnologycameracamerascampingCanadian financial aidcanoncelebritycellphone chargercensorshipcheap scuba gearchromeChromebookcommercial divingcopyrightcourier trackingcrowdfundingcutting stainless steelcyber bullyingcyber shotdigital cameradigital surveydocumentarydoodleDSC-W570DSLRdslr cameraEcommerceengaging online audienceEntrepreneurentrepreneurshipeos 650deos meuro 2012europeeuropean unionfacial recognitionfake profilefilmfind friends nearbyFood Marketingfree adsfroyog+galaxy nexusgalaxy s3gamegame of thronesgameboy emulatorGigabyteGigabyte P2542GGigabyte P2542G featuresGigabyte P2542G pricegoods transportationgooglegoogle docsgoogle mapshackhard workhboHewlett-Packardhoaxhome renovation contractorshouston oilersHPHP Envy Spectre XTHP Envy Spectre XT featuresHP Envy Spectre XT priceHP Pavilion M6HP Pavilion M6 featureshtc one xhtml5html5 builderieIMAGEinfluenceInnovationinstagramInternational Tradeinternet explorerinvestmentsinviteipadipad miniiPhoneiphone 5iPhone caseiPod touchiraniWatchjava 7justin bieberkasperskykatie szpyrkakhameneikickstarkickstarterkloutlawsuitlcd displaylenovoLinkdInlinkedinMacBook Airmacbook promcafeemetroMicronMicron Pop Videomicrosoftmicrosoft surfacemirrorless cameramobile appmobile applicationMobile Technologymodern uimoviemoving to a new homemulti-functionalnature photographynetbooksnintendooffice renovation contractorolympicsonline marketingonline streamparcel courierpassenger rightspasswordspatentpebblepetitionphantom profilePhilip MatesanzPHOTOGRAPHpinterestpiracyplants vs zombiespoliticspopcapprivacypromotionsputinQuantum Computingquotesquotes about entrepreneurshipreality checkrebel t4iregistrationremote operated vehicleretina displayRobotsrumorsrussiaS4samsungsamsung galaxy s3saperSavannah Dietrichschoolsscuba divingsea freightsearchsearch enginesequoiasharp shootershort namesshutdownsmallsmall businesssmall camerasmall dslrsmallest lightestsmart coversmart watchSmartWatchsonySony Cyber-shot DSC-WX300Sony laptopsSony Vaio Pro 13spainstalking appstartupsstatisticsstreet viewSucceedsupercomputertablettech geekstechnologyThinkVision LT 1421Total Absorption CostingtrackingtransportationtrojantwindexUltrabookunbaby.meunited statesUpcomingupdateUS governmentVariable Costingvirusvodafonewaterproof casewebsite submissionwhatsappwifiwindowswindows 8xperia miroxperia tipoyoutube

Flickr Photogallery

Subscribe Newsletter

subscribe with FeedBurner

Variable Costing Realities

What are the differences between variable and absorption costing methods? One of the biggest differences between variable costing and absorption costing is the manner in which the fixed manufacturing cost is charged off. Both variable and absorption costing use direct cost, variable cost and variable manufacturing cost are considered to be the product expense.

Variable costing charges off fixed manufacturing cost as period cost, in full at the end of every period. In doing this, the product cost won’t reflect any fixed cost. Managers can use such information to get the bare minimum cost of manufacture of a product. Many say that by not showing fixed manufacturing cost, it will be more difficult to keep accurate and competitive prices. They are essentially opening themselves up to failure if they charge to much, they’ll lose market shares. Yet if they under budget fixed manufacturing, the price could be far too less and they may lose money in the long run.

But Wait, There’s More About Variable Costing

Absorption costing charges off fixed manufacturing cost as a product cost, so the product will reflect this overhead expense. This would be a full look at all cost contributing to the making of a good and can help managers decide on proper pricing. The only con to this kind of costing is the number of time needed to follow through with matching fixed manufacturing to each product. This method is far easier to use with manufacturers that make only a very small limited amount of products, thus easier to cost match and more cost effective to use.

To change direction..

Total cost of production, in terms of economics, refers to the sum of all economic costs involved in manufacturing a product. This includes all fixed costs (costs such as rent, electricity bills, utility bills, etc. that have no bearings on and cannot be directly allocated to the manufacturing process) that must be incurred regardless of the volume and quantity of production, variable costs (expenses such as cost of raw materials, spare parts, labor cost, etc. which are incurred for the exclusive purpose of production and can be directly allocated to the production process) and opportunity cost (cost of the next best alternative that was given up in favour of the chosen alternative).

More About Variable Costing

Overhead costs. The profit or loss figure is reached by calculating the gap between total costs and total sales revenue. A cost sheet is ready to record such costs and to reach the profit or loss figure (as the case might be).

The TVC is the sum of all those costs that change in direct proportion to the variation in the quantity or volume of production. Such costs include cost of raw materials, labor cost, cost of operations, variable overheads, packaging, etc. An increase in the size of production results in an increase in variable costs and vice versa.

Either way, which ever form of costing use, it is only perfect after the fact. In both ways, managers will have to adopt the information into consideration for the coming period and make a budget. The application of each type of costing are GAAP approved, so whichever is chosen will have to be stuck to each period. If the costing method is changed because one is more appropriate for your company, it must be noted in the Summary of Accounts and mentioned to the IRS when filing your next year’s taxes.

Leave a reply

Your email address will not be published.