Contact Us
Sign In / Sign Up for FREE
Go to advanced search...

The difference between concepts of Absorption costing and Variable Costing - Essay Example

Comments (1) Cite this document
This paper aims to help as to understand the different concepts of Absorption costing and Variable Costing, it is essential to know and understand about the various types of costs that are a part of the total costing process…
Download full paperFile format: .doc, available for editing
GRAB THE BEST PAPER92.9% of users find it useful
The difference between concepts of Absorption costing and Variable Costing
Read TextPreview

Extract of sample "The difference between concepts of Absorption costing and Variable Costing"

Download file to see previous pages The difference between concepts of Absorption costing and Variable Costing

Direct costs are those costs that can be easily associated with a specific identity that may be a product or a service. Cost incurred for purchase of material, labor costs earned to produce the final product etc; all are a part of direct cost as they can be easily linked with per unit cost of a product (Gazely M A & Lambert M, 2006). Such costs vary with the nature of a business, for instance if a company manufactures electronic gadget like microprocessor and an expert production manager is hired for the job then his salary would be considered as a direct cost or if an individual runs a car washing business which is imparting of service, then the wages paid to the people hired for the job will be taken to be a direct cost.

Direct costs are most of the time taken to be as variable costs. Variable costs increase proportionately with the increase in the quantity of production, thus they are also considered to be direct costs in nature. But in case when the manager or person acquired to monitor the production process is paid a regular amount of salary every month or for a particular period of time irrespective of the volume of production then it is called a fixed cost.

The different types of direct costs consist of direct materials and direct labor. Direct materials are directly identified with the particular product (Seal W, Garrison H R & Noreen W E, 2006). For instance, to manufacture product like furniture, direct material required for it would be wood, varnish, polish etc. When charging expenses to federally sponsored agreements, Virginia Commonwealth University (VCU) faculty and staff must be aware of the appropriateness of the charges.  OMB Circular A-21 provides the criteria for direct charging costs to federally sponsored programs.  The basic principle is that costs directly charged to a sponsored project must be allocable, allowable, reasonable and necessary, and treated consistently. A cost to be called as a direct cost must result in a direct gain from an activity and also it should be directly allocable to the specific project or task taken into consideration (Hilton W R, Robert J. Swieringa J R & Turner J M, 1988). On the whole direct costs must be: Allocable: if the costs can be bifurcated into various heads such as ...Download file to see next pagesRead More
Cite this document
  • APA
  • MLA
(“The difference between concepts of Absorption costing and Variable Essay”, n.d.)
Retrieved from
(The Difference Between Concepts of Absorption Costing and Variable Essay)
“The Difference Between Concepts of Absorption Costing and Variable Essay”, n.d.
  • Cited: 0 times
Comments (1)
Click to create a comment or rate a document
hermannclare added comment 7 months ago
Student rated this paper as
The topic of "The difference between concepts of Absorption costing and Variable Costing" was hard to find. I spent hours to find it. Here at StudentShare, I got the finest sample. Many thanks!

CHECK THESE SAMPLES OF The difference between concepts of Absorption costing and Variable Costing

Traditional Absorption Costing versus Activity Based Costing Fritzsch 1998) found that all manufacturing costs pools are being allocated. As a direct result of this Fritzsch points out that in addition to the failure of ABC to distinguish between fixed and variable cost it absorbs cost that are partly sunk costs. This is seen as a continuation of the issue of how to treat fixed and variable costs. That is, the same issues affecting the use of traditional absorption costing also applies to ABC. 2.5 Further analysis and discussion In summary ABC requires the factors which results in costs of major activities in...
12 Pages(3000 words)Assignment

Full Costing and Variable Costing

...?Full Costing and Variable Costing Contents Full Costing and Variable Costing Instructor 1 Date 1 Contents 2 Executive Summary 3 Main Findings 4 Direct Costs 5 Indirect Costs 6 Full Costing 6 Variable Costing 7 Summary of Full Costing and Variable Costing Components 8 Making a choice between the two 9 Conclusion and Recommendations 10 References 12 Accounting for Management, 2011. Advantages and Disadvantages of Absorption Costing System. [online]...
8 Pages(2000 words)Essay

Contrast and Compare Absorption Costing with Marginal Costing

...of employees for running their business as they are labour intensive firms. Services that these types of firms provide cannot be stored and these services are kind of perishable commodities. Major inputs used in these firms cannot also be stores because major inputs are labors. Apart from these features, services firms do not produce tangible goods, but services are intangible goods. Both full costing and variable costing are two different types of product costing, but the difference is that full costing or absorption costing takes in to account all different types of...
8 Pages(2000 words)Essay


7 Pages(1750 words)Research Paper

Variable Costing

...of the inventory/stock, no other thing is capitalized. The only big difference between variable costing and the absorption costing is how the fixed manufacturing overhead is treated (Maher et, al 2006). Under the variable costing method, the fixed manufacturing overhead is treated as period expenditure and is normally on the income statement for the period it incurred in a lump sum while the absorption costing method, the fixed manufacturing overheads are allocated to the units that are produced, so that some bits or small amounts of fixed manufacturing overheads are...
5 Pages(1250 words)Essay

Variable costing

...Costing: this is the method that does not focus on the future, but is used to arrive at the costs when they have been incurred. It is a rarely used method. Direct Costing: Direct costing method is a technique which charges all the direct costs in the product cost while fixed costs (indirect costs) are written off from profits. Absorption Costing: this is a method of charging all the costs, both the fixed and the variable operations, products or processes. The difference between this method and the...
4 Pages(1000 words)Assignment

The effective of outdoor advertsing using exmaple from the mobile phone indusrty

46 Pages(11500 words)Essay

Absorption Costing Vs. Marginal Costing

...’ strategic and operational goals?   Absorption costing and Marginal costing are two such costing methods. They differ to quite an extent, however whether one method is better than the other depends largely on the situations in which they are applied and the underlying objectives of the businesses in which they are applied.   Before looking at these two concepts in detail, it is appropriate to discuss the components that make up the ultimate cost of a good or service. The cost of something can be broadly broken up into fixed costs and variable...
9 Pages(2250 words)Assignment

Absorption and Marginal Costing

This technique of costing is also known as the full-cost technique (Sikdar, 2008). In reality, the technique of marginal costing takes into consideration the behavioral features of costs by segregating the costs into fixed and variable elements. The segregation is done because per unit variable cost is fixed and total costs are variable in nature but actually total fixed costs are fixed and per unit fixed cost is variable in nature. In addition, variable costs are handy in nature, whereas total fixed costs are unmanageable in nature. Short term planning makes use of the Marginal costing technique. Control and decision making in particular reference to the production of multi-products also uses marginal costing (Sikdar, 2008). The...
10 Pages(2500 words)Assignment

Absorption Costing versus Variable Costing

...for estimating the cost of production. However, managers are seen to use the same for assessing internal operations affectivity. The variable costing technique includes only the variable production costs. Fixed manufacturing expenses under this method are treated as period cost and are deducted from the income earned during the period (Hilton, 1994). Differences between absorption and variable costing (Horngren, 2012): Absorption costingVariable costing It includes direct materials,...
6 Pages(1500 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 The difference between concepts of Absorption costing and Variable Costing for FREE!

Contact Us