Costing
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- Date Submitted: 08/04/2014 06:46 AM
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Cost Absortion
Student’s name
ACC 561
Dated
Instructor name
Cost Absorption
The following will explain several questions in response to Variable and Absorption Cost Methods. It will explain in this circumstance which is better to uses, what the benefits of the two are and which method would lead to the best decision if a competitor is submitting a lower bid for your product.
In this case, would it be better to use the variable or absorption costing method, and why?
It would be better to use the Absorption Costing Method for this case. Using the absorption costing will make the product cost consistent with the fixed manufacturing cost including factory overhead, direct material and labor. Using this method we are able to reduce the net income.
What are the benefits of the two methods?
Absorption Costing Method
* Absorption costing will help avoid the fixed and variable cost elements
* You will be able to calculate a more accurate profit
* This method also benefits a company when there is an excess of manufactured products at the end of accounting period
* Also help a company know the cost of services provided to others
Variable Costing Method
* Provides accurate fixed cost on the net profits
* Shows the company’s profits after all the bills have been paid for the accounting period
Which method would lead to the best decision when a competitor is submitting a lower bid for the product?
Most companies should use the absorption costing method when a competitor is submitting a lower bid for your product. The variable costing method is best supported when dealing with internal management decision making and absorption is better served when dealing with external parties. Using absorption costing can raise product cost by fixed manufacturing cost. While fixed manufacturing cost can be inventoried using this method and will justified.
Student’s name
ACC 561
Dated
Instructor name
Cost Absorption
The following will explain several questions in response to Variable and Absorption Cost Methods. It will explain in this circumstance which is better to uses, what the benefits of the two are and which method would lead to the best decision if a competitor is submitting a lower bid for your product.
In this case, would it be better to use the variable or absorption costing method, and why?
It would be better to use the Absorption Costing Method for this case. Using the absorption costing will make the product cost consistent with the fixed manufacturing cost including factory overhead, direct material and labor. Using this method we are able to reduce the net income.
What are the benefits of the two methods?
Absorption Costing Method
* Absorption costing will help avoid the fixed and variable cost elements
* You will be able to calculate a more accurate profit
* This method also benefits a company when there is an excess of manufactured products at the end of accounting period
* Also help a company know the cost of services provided to others
Variable Costing Method
* Provides accurate fixed cost on the net profits
* Shows the company’s profits after all the bills have been paid for the accounting period
Which method would lead to the best decision when a competitor is submitting a lower bid for the product?
Most companies should use the absorption costing method when a competitor is submitting a lower bid for your product. The variable costing method is best supported when dealing with internal management decision making and absorption is better served when dealing with external parties. Using absorption costing can raise product cost by fixed manufacturing cost. While fixed manufacturing cost can be inventoried using this method and will justified.