Average Costs and Variable Costs as Performance Measures - Essay Example

Comments (0) Cite this document
According to Pride and Kapoor,Cost Accounting involves such processes as the collection, analysis and evaluation of certain courses of action in order to offer invaluable advice to the management on the best way to act regarding cost efficiency versus capability…
Download full paperFile format: .doc, available for editing
GRAB THE BEST PAPER93.4% of users find it useful
Average Costs and Variable Costs as Performance Measures
Read TextPreview

Extract of sample
"Average Costs and Variable Costs as Performance Measures"

Through cost accounting, the management can understand the management needs and in this regard control the current operations as they plan. Normally, in every accounting environment be it within an organization or the government institutions, there are costs of production that include the fixed and the variable costs (Drury, 2008). While fixed costs do not vary with the output like rent, insurance, and depreciation, variable costs as their name suggest, are under constant fluctuation depending on the output for example fuel cost, labor costs, and cost of materials. Average costs on the other hand are obtained by dividing the costs by the output (Pride, Hughes & Kapoor, 2012). Although the average costs and the variable costs may at times be unpredictable, managements can make use of the costs to measure the performance of the organization as well as the managers. The manager of the manufacturing unit in a company is responsible for the costs of the manufacturing unit (Drury, 2008). In this regard, quality, timely delivery, and cost measures are used to reward the manager’s performance. However, there are problematic areas associated with the process of deciding whether to evaluate the manager of the manufacturing unit by average cost per unit or the variable cost per unit (Sharan, 2009). One of them is that the output has an indirect correlation to the costs and revenue therefore evaluating the manager of the manufacturing unit based on this may not be reliable as it may fluctuate depending on the total output. Secondly, it would be inappropriate to judge a manager based on the costs of production, as they may not have any control or influence on such factors. For instance, such costs as labor costs and cost of materials may vary therefore the management can instead use the total average costs that would present a more non-variable performance index (Drury, 2008).  Just-In-Time and Stock-Out Costs Organizations are trying to cut costs either in order to stay in business or to move ahead of their competition. Some organizations consider a shift to Just- In-Time inventory system (JIT). It is thought that considerable costs can be saved by reducing inventory. While Just in Time (JIT) strategy of production may enhance the return on investment of a business, through the reduction of associated carrying costs and in-process inventory, Stock-Out Costs normally derive from lost opportunities resulting from the depletion of the inventory. This exhaustion could result from poor shelf replenishment practices or an oversight on the part of the management (Crosson & Needles, 2011).  There are a number of pros and cons of JIT in correlation to Stock-Out Costs. One of the benefits is the ability by companies to manage customer needs and change in interests while they balance between avoiding Stock-Out Costs while at the same time minimizing inventory costs. Another advantage is the reduction in inventory costs due to the reduction of JIT holding space, enabling the company to experience growth through more investments (Drury, 2008).  However, the major disadvantages associated with JIT include poor coordination and the high risks involves especially in correlation to the Stock-Out Costs. Poor coordination comes in the sense that retailers and suppliers have a problem communicating and coordinating the activities within the distribution channel (Sharan, 2009). Besides, the risks associated with JIT are enormous especially if the suppliers have distribution challenges that may upset prospective customers. An organization can therefore measure Stock-Out Costs by performing a manual audit of the stock by searching for any available Read More
Cite this document
  • APA
  • MLA
(“Average Costs and Variable Costs as Performance Measures Essay”, n.d.)
Average Costs and Variable Costs as Performance Measures Essay. Retrieved from
(Average Costs and Variable Costs As Performance Measures Essay)
Average Costs and Variable Costs As Performance Measures Essay.
“Average Costs and Variable Costs As Performance Measures Essay”, n.d.
  • Cited: 0 times
Comments (0)
Click to create a comment or rate a document
Fixed and Variable Costs
For example if the company is producing more aero planes then more amount of raw material will be required to make the planes (Leslie 1993). Examples of variable cost include raw material, labor cost. There are some costs which include both the fixed and variable element in it and are referred to as semi variable costs.
2 Pages(500 words)Essay
To manage a business successfully, the manager should make plans both in the short run and strategic perspectives. The business manager has to understand the various types of cost and their behavior in the short run and long run and hence this essay. Long run has been defined as that period of time in which all the factors of production are variable, but the state of technology is fixed(Jocelyn, 80).
6 Pages(1500 words)Essay
Fixed Cost, Variable Costs, and BreakEven Point (Financial Management)
2 Pages(500 words)Essay
Practice Determinants and Outcomes of Multiple Performance Measures
Multiple performance measurements, integration of financial and non-financial measures, is one of the key innovations in management control systems that provide managers critical information on monitoring crucial business activities and organizational goals. There is an increasing trend to adopt nonfinancial measures in customer perspectives.
80 Pages(20000 words)Essay
Variable and Fixed Costs
In year 2011, Herrested Company earned contribution margin of $60 per unit or $480,000 in total with the net income of $180,000. If the selling price per unit is increased to $280, it will result in the
2 Pages(500 words)Essay
Variable and Fixed Costs
On the other hand, variable income statement organizes costs incurred by business by their behavior. Additionally, it indicates the
2 Pages(500 words)Essay
CASE 3- Variable and Fixed Costs
Further the concept of breakeven points is explained, the method to come to the breakeven point is also explained and the purpose of calculating breakeven point is discussed in the following paper. Absorption costing
3 Pages(750 words)Essay
Analyze the companys cost structure (e.g., variable vs. fixed costs, manufacturing vs. non-manufacturing costs, direct vs. indirect costs, job costing or process costing, etc) for starbucks
Fixed costs on the other hand, are expenses the company incurs whether they make coffee or not. For example if they don’t sell a cup of coffee, they
2 Pages(500 words)Essay
Social costs
The social costs of unemployment in both the USA and Canada are similar in most cases; nevertheless, there exists instances where they differ. Long-term unemployment in both the USA and Canada creates numerous long run social costs in these nations. For
1 Pages(250 words)Essay
Mixed cost illustration Discretionary fixed costs ordinarily refer to short term fixed costs whose occurrence is due to decisions devised by a given firm’s management
1 Pages(250 words)Essay
sponsored ads
We use cookies to create the best experience for you. Keep on browsing if you are OK with that, or find out how to manage cookies.
Let us find you another Essay on topic Average Costs and Variable Costs as Performance Measures for FREE!
Contact us:
Contact Us Now
FREE Mobile Apps:
  • About StudentShare
  • Testimonials
  • FAQ
  • Blog
  • Free Essays
  • New Essays
  • Essays
  • Miscellaneous
  • The Newest Essay Topics
  • Index samples by all dates
Join us:
Contact Us