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What are the pros and cons of using a variable product costing reporting system with a JIT inventory system?
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Please visit these Web sites for detailed information regarding variable product costing and JIT inventory systems: * http://www.smccd.net/accounts/nurre/online/chtr7.html * http://www.maaw.info/5partsofcostsystem.htm
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∙ 17y ago
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What are the advantages of using variable costing?
ADVANTAGE OF VARIABLE COSTING 1. Inventory changes do not affect profit. 2. Phantom profits are ignored. - Profit resulting from inventory buildup, not sales, is ignored. - When absorption method reports phantom profits, it fails to account for expenses related to carrying the additional inventory. 3. Cost-volume-profit relationship - Facilitates c-v-p analysis by separating cost behavior. - Aids management in solving problems involving choices, e.g., make-or-buy decisions where it facilitates comparing company costs with the costs of buying from outsiders (we'll see this in week 6). 4. Marginal products - Variable costs correspond closely with current out-of-pocket expenditures for a product. - Provides sharper focus on the profitability of products, customer, territories. - Multiplying the volume of an item by its unit contribution margin discloses the relative importance of a product's contribution. 5. Impact of fixed costs - Easier to identify impact of FC by separating it and not burying it in inventory or cost of sales. - Helps management to control operating costs by separating them from COMMITTED COSTS. - Responsibility accounting is easier under VC. As VC does not allocate fixed costs to products, it simplifies tracing costs by lines of managerial responsibility. 6. Pricing policies - Contribution margin approach provides guidelines for the most profitable pricing policies. - In the long run, pricing policies should focus on AVERAGE FULL COST, and in the short run, CONTRIBUTION MARGIN. DANGERS OF VARIABLE COSTING 1. Many are accustomed to the functional income statement, the normal relationship of sales to total costs and to using gross margin and net income data. 2. May assign variable income a broader significance than it has. - When sales is greater than production, higher profits may mislead management into taking improper action. - When production is greater than sales (esp. at the onset of recession when sales lags production), the decreased profits may mislead management as to the severity of the recession and lead to missed future profit opportunities. 3. Over-emphasis may lead to improper decisions regarding relevant costing. - If company drops items contributing small amounts of profits, the fixed unit cost that other products must cover will increase. Thus, profits will likely decrease if company fails to add other products to its line. 4. Difficulty in separating cost behavior. 5. In light of the greater proportion taken up by fixed cost in an automated company's cost structure, the practice of eliminating fixed costs from products becomes questionable realistically and theoretically.
Design a while loop that lets the user enter a number the number should be multiplied by 10 and the result stored in a variable named product?
Define number_in, product integer; Set product = 0; While product < 100 set product = number_in * 10; accept (input) number_in End_while
What is Difference between process control and product control?
Process control deals with the specific process algorithms, architecture, and mechanisms in engineering production to keep a specific output. Product control is used in banking at trade desks for doing accounting and reporting, monitoring, and maintaining the activities of trading portfolios.
Do dvd's have rfid tags?
RFID tags could be affixed to DVD's but are unlikely. They are more typical on products of higher value. They are sometimes used to manage inventory more efficiently, and sometimes to track product locations and prevent stealing.
Advantages and disadvantages of Just in time Inventory system?
SimplicityFor a very small business that carries a limited amount of inventory or that turns over inventory slowly, a mechanized inventory system is unnecessary. The business owner can easily keep track of how much merchandise is on hand with a manual system, or simply by applying the "eyeball test" to see if it is time to order more. The owner won't need to spend money on inventory software or take the time to learn how to operate it. Sense of ControlA manual system gives a small business owner a greater sense of control. Rather than relying on a computer to indicate when it's time to reorder, the owner can manage the process on his own. The need to view his merchandise on a regular basis, such as when counting stock before placing an order, gives him the opportunity to assess the condition of his merchandise, reducing the chance of a customer receiving damaged goods. Labor-IntensiveA disadvantage of manual inventory systems is that they can be highly labor-intensive to operate. They require continuous monitoring to ensure that each transaction is accounted for and that products are maintained at the appropriate stocking levels. It is also more difficult to share inventory information throughout the business, because the lack of computerization makes accessing inventory records a more cumbersome process. The time spent monitoring inventory levels could be used on more productive activities for the business. Human ErrorA manual inventory system relies heavily on the actions of people, which increases the possibility of human error. People might forget to record a transaction or simply miscount the number of goods. This results in needless additional orders that increase the company's inventory carrying costs and use up precious storage space. Inaccurate physical counts could also result in not ordering enough of a product, meaning the business could run out of a crucial item at the wrong time.
Why marginal costing method not Suitable to be used by manufacturer for external financial reporting and tax purpose?
I think..... In marginal costing method only variable cost is considered as product cost and fixed cost is not considered as product cost. But in reality product cost include fixed and variable, thus both variable and fixed costs should be considered while allocating cost. Marginal costing is used for inside reporting and absorption costing is used for outsider to clarify the real cost of product........ Am i right? Please confirm it
What costing method considers variable factory overhead a product cost?
variable costing
Why is Variable costing is a good method for internal reporting especially?
It informs the management that how much any unit of product is helping towards recovering the fixed cost.
Why GAAP precludes use of variable costing for external financial reports?
GAAP does NOT preclude use of variable costing for external financial reports. The only place the literature addresses this question is in ARB (Accounting Research Bulletin #4) which states that the exclusion of all overhead from inventory is unacceptable. Variable costing does not attempt to exclude overhead associated with the production of product, i.e. variable overhead. But it does exclude the cost of providing productive capacity. It is odd that in its discussion of the current standard for segment reporting that the FASB said that external users of financial information should received data prepared on a basis consistent with that used by management for decision making. Since it is widely accepted that variable costing is useful to management, can this statement by the FASB be consider an endorsement of variable costing in the financial statements of companies which use it internally?
How do variable costing and absorption costing differ?
marginal costing is also known as contribution costing. its a costing method that's includes only a variable cost of a product no attempt is made to allocate or appropriate fixed costs to cost centers. the setting of prices is basically based on the variable costs of making a product. if the prices are set above this unit cost then each item sold will make a condition to fixed costs. on the other hand absorption costing or full costing is an approach to the costing of products that allocated all costs of production to cost centers. The aim is to ensure that all business costs are covered.
Under variable costing variable selling and administrative costs are included in product costs?
No. They are not.they are part of period costs.
What cost is charged to the product under variable costing?
the Utah Jazz can sodomize itself
What is variable costing method?
method in which the costs to be inventoriedinclude only the variablemanufacturing costs. Fixed factory overhead is treated as a period cost-it is deducted along with the selling and administrative expenses in the period incurred. That is, Direct materials $xx Direct labor xx Variable factory overhead xx Product cost $xx Fixed factory overhead is treated as a period expense. Variable costing is used for internal management only. Its uses include: (1) inventory valuation and income determination; (2) relevant cost analysis; (3) break-even analysis and Cost-Volume-Profit (CVP) Analysis ; and (4) short-term decision-making. Variable costing is, however, not acceptable for external reporting or income tax reporting. Companies that use variable costing for internal reporting must convert to absorption costing for external reporting. Under absorption costing, the cost to be inventoried includes all manufacturing costs, both variable and fixed. Nonmanufacturing (operating) expenses, i.e., selling and administrative expenses, are treated as period expenses and thus are charged against the current revenue. Direct materials $xx Direct labor xx Variable factory overhead xx Fixed factory overhead xx Product cost $xx Two important facts are noted: 1. Effects of the two costing methods on net income: (a) When production exceeds sales, a larger net income will be reported under absorption costing. (b) When sales exceed production, a arger net income will be reported under direct costing. (c) When sales and production are equal, net income will be the same under both methods. 2. Reconciliation of the direct and absorption costing net income figures: (a) The difference in net income can be reconciled as follows: (b) the above formula works only if the fixed overhead rate per unit does not change between the periods.
Assuming that direct labor is a variable cost product costs under variable costing include only?
B. Direct materials, direct labor, and variable manufacturing overhead.
Are selling and administrative expenses treated as product costs or as period costs under variable costing?
Period Costs.
Are selling and administrative expenses treated as product costs or period costs under variable costing?
Period Costs.
Is inventory a fix cost or variable cost?
inventory (i.e. stock) is an asset, not a cost. It is considered a current asset, however may be illiquid depending on the product
