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Would you recommend variable costing or absorption costing as a source of information for managers?
I would recommend variable costing for managerial decision-making because it provides clearer insights into the impact of variable costs on profitability. This method helps managers understand how changes in production volume affect costs and profits, facilitating better budgeting and performance evaluation. Absorption costing, while useful for external reporting, can obscure the relationship between fixed costs and production levels, potentially leading to less informed decisions. Therefore, for internal management purposes, variable costing is generally more effective.
What else can I help you with?
What is Absorption Costing and how is it different from Variable Costing?
Absorption Costing (also known as traditional costing approach or full costing) absorbs all costs incurred to produce goods, which can result in misleading product cost information for decision-making. In absorption costing, fixed overheads are considered as product cost. These are added in the cost of inventory and not shown as separate item (period cost) in the income statement. The full cost includes cost of direct materials, direct labor, variable manufacturing overheads and fixed overheads. The absorption costing focuses only on total cost viz. variable and fixed and it is not useful for managers to take decision, plan about future and exercise control. The cost volume profit relationship is ignored because it takes into account the total cost. Absorption costing is suitable only in those companies where equal number of units are produced and sold. However, a business operates in a dynamic environment and production and sales keep on fluctuating on a regular basis. Therefore, as absorption costing is used in such a scenario, the cost will keep on fluctuating...
What are the differences between Absorption Costing and Variable Costing?
VARIABLE COSTING VERSUS ABSORPTION COSTINGAbsorption costing applies all manufacturing overhead to production costs while they flow through Work-in-Process Inventory, Finished-Goods Inventory and expenses on the income statement while Variable Costing only applies variable manufacturing overhead.Fixed manufacturing overhead is expensed immediately as it is incurred under variable costing while it is inventoried until the accounting period during which the manufactured goods are sold under absorption costing.
How do managers decide whether a cost is variable or fixed cost?
Managers classify costs as variable or fixed based on their behavior in relation to production levels. Variable costs change directly with the volume of goods or services produced, such as materials and labor, while fixed costs remain constant regardless of production levels, like rent and salaries. They analyze historical data, project future production needs, and consider the nature of each cost to make this determination. Understanding these distinctions helps managers in budgeting, forecasting, and pricing strategies.
Difference between marginal cost accounting statements and absorption cost accounting statement?
marginal costing considers only direct) materials,labour,expenses and variable factory overheads excluding fixed factory overheads but absorption considers (direct) materials ,labour,expenses,variable and fixed factory overheads.
Why do Managers prefer Variable Costing?
Managers prefer variable costing because it provides a clearer picture of the actual cost of production by only including variable costs in product costs, thus aiding in decision-making. This method allows for better analysis of cost behavior and profitability, particularly in scenarios of fluctuating sales volumes. Additionally, variable costing aligns with management's focus on controlling costs and optimizing resource allocation, making it easier to assess operational efficiency. It also facilitates more accurate forecasting and budgeting.
What are variables used to classify stars?
The first variable that is used to classify stars is its ionization state which can measure the photosphere's temperature and density. This information is gathered by splitting the light from a star with a prism and observing the resulting spectrum that includes absorption lines. Luminosity is another variable used; it is based on the width of absorption lines.
Light absorption by a pigment is measured for red blue green and yellow light what is the dependent and the independent variable?
The dependent variable is the amount of light absorbed by the pigment, as this is the outcome that is measured. The independent variable is the color of the light used (red, blue, green, yellow), as this is the factor that is being manipulated to observe its effect on light absorption.
If you were a candy manufacturer which costing system should you use full absorption costing or variable costing?
full absorption costing
What is Absorption Costing and how is it different from Variable Costing?
Absorption Costing (also known as traditional costing approach or full costing) absorbs all costs incurred to produce goods, which can result in misleading product cost information for decision-making. In absorption costing, fixed overheads are considered as product cost. These are added in the cost of inventory and not shown as separate item (period cost) in the income statement. The full cost includes cost of direct materials, direct labor, variable manufacturing overheads and fixed overheads. The absorption costing focuses only on total cost viz. variable and fixed and it is not useful for managers to take decision, plan about future and exercise control. The cost volume profit relationship is ignored because it takes into account the total cost. Absorption costing is suitable only in those companies where equal number of units are produced and sold. However, a business operates in a dynamic environment and production and sales keep on fluctuating on a regular basis. Therefore, as absorption costing is used in such a scenario, the cost will keep on fluctuating...
What is the dependent and independent variable when you measure the absorption of heat by color?
For dependent and independent variable, remember DRY MIX:D - dependent variableR - response you are recording in your notebookY - graphed on the Y-axisM - the thing manipulated by the scientistI - independent variableX - graphed on the X-axisSo for absorption of hear by color:the dependent variable is the absorption of heat: that's the response you are recording and when you graph it, this value goes on the Y-axis.the independent variable is the color: that's the thing you manipulated and when you graph it, this value goes on the X-axis.
What are the differences between Absorption Costing and Variable Costing?
VARIABLE COSTING VERSUS ABSORPTION COSTINGAbsorption costing applies all manufacturing overhead to production costs while they flow through Work-in-Process Inventory, Finished-Goods Inventory and expenses on the income statement while Variable Costing only applies variable manufacturing overhead.Fixed manufacturing overhead is expensed immediately as it is incurred under variable costing while it is inventoried until the accounting period during which the manufactured goods are sold under absorption costing.
Is wavelength or absorbance the dependent variable?
"absorbance"Since in the experiment, you probably choose the wavelength, then measure the absorbance (absorption?, the absorbance is the dependent variable.
How is the use of variable costing is limited?
Variable costing is limited primarily because it does not comply with generally accepted accounting principles (GAAP), which require absorption costing for external financial reporting. This method can also distort profitability analysis, as it excludes fixed manufacturing overhead from product costs, potentially misleading managers about the true cost of production. Additionally, variable costing may not be suitable for long-term decision-making, as it focuses on short-term variable costs and can overlook the impact of fixed costs on overall profitability.
What are system variable in management information system?
is quantity or item controlled by the decision maker.
How do managers decide whether a cost is variable or fixed cost?
Managers classify costs as variable or fixed based on their behavior in relation to production levels. Variable costs change directly with the volume of goods or services produced, such as materials and labor, while fixed costs remain constant regardless of production levels, like rent and salaries. They analyze historical data, project future production needs, and consider the nature of each cost to make this determination. Understanding these distinctions helps managers in budgeting, forecasting, and pricing strategies.
Do companies in either the service sector or the merchandising sector make choices about absorption costing versus variable costing?
Yes, companies in both the service sector and the merchandising sector make choices between absorption costing and variable costing. Absorption costing includes all manufacturing costs, both fixed and variable, in the cost of goods sold, while variable costing includes only variable manufacturing costs. The choice between the two can significantly impact financial statements and tax liabilities, influencing management decisions and performance evaluation. Companies often select the method that aligns with their financial reporting needs and internal management strategies.
Where can one find information on standard variable rates?
Information on standard variable rates can be located by visiting websites such as Money Facts and This is Money. Information on standard variable rates can also be obtained by visiting one's local bank and inquiring about them.
