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.

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

Comments (0) 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
Polish This Essay96.6% 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 https://studentshare.org/management/1416282-the-difference-between-concepts-of-absorption-costing-and-variable-costing
(The Difference Between Concepts of Absorption Costing and Variable Essay)
“The Difference Between Concepts of Absorption Costing and Variable Essay”, n.d. https://studentshare.org/management/1416282-the-difference-between-concepts-of-absorption-costing-and-variable-costing.
  • Cited: 0 times
Comments (0)
Click to create a comment or rate a document
Manac Plc. Models and concepts affecting the pricing decisions taken by organizations, critically reflecting upon their usefulness
The Maniac Plc deals with the sale and production of normal electrical goods. A full evaluation of costing requirements has conducted by the organization to recognize those regions which have not met financial plan expectations. The models and concepts which affect the pricing decisions of a firm are management accounting decisions.
12 Pages(3000 words)Essay
Full Costing and Variable Costing
Advantages and Disadvantages of Absorption Costing System. [online] Available at < http://www.accountingformanagement.com/advantages_and_disadvantages_of_absorption_costing.htm > [Accessed 25 December 2011] 12 Charles T. Horngren, Srikant M. Datar, George Foster, 2007.
8 Pages(2000 words)Essay
Target Costing
Banham (2000) discussed that strongly bonded supply chain members result in cost controls and hence, results in overall combined cost savings. For major portion of the product cost, which accounts for almost 70 to 80% of the total cost as mentioned in the study of Cooper and Chew (1996), employing target costing enables business to take cost benefit from various aspects identified in the initial stage of designing.
4 Pages(1000 words)Essay
Variable Costing
The total variable cost normally changes as the activity level changes, while per unit, the variable cost per unit will normally remain the equal over a wider range of activity. Fixed cost will always remain the same when the activity level changes while fixed cost per unit decreases with an increase in the activity level (Hansen, et, al 2006) Mixed cost, have both the component of variable and fixed costs.
5 Pages(1250 words)Essay
Variable costing
TABLE OF CONTENTS Executive summary 2 Assumptions of marginal costing 3 Uses of marginal costing in short term decision making 3 Types of costing methods 4 Marginal costing absorption method 5 Advantages of Marginal Costing over Absorption Costing 6 Recommendation 7 Conclusion 7 Costing is one of the managerial accounting functions which needs a careful selection and evaluation of the effectiveness of every technique used by a firm.
4 Pages(1000 words)Assignment
Management Accounting: Costing and Budgeting
Ans: If LIFO method is used over the lifetime of the business where the costs of raw materials are expected to rapidly increase, it will have minimal effect on the reported profits of the business. In the first year of operations, there will
10 Pages(2500 words)Essay
Cost Concepts and Their Application
Third, it shows the result of individual operations. Lastly, it attempts to forecast future results. A cost object is any activity or part of an organisation for which a separate determination of costs is required. A cost unit is a unit of product, service or time (or a combination of them) in relation to which costs may be ascertained or expressed.
4 Pages(1000 words)Essay
Full costing versus variable costing: Does the choice still matter
Two major costing approaches have been developed for ensuring the accurate measurement of costs of products in organizations operating in different industrial sectors: the full costing, also known as absorption costing, and the variable costing. Both these approaches
7 Pages(1750 words)Essay
BSc Accounting Programme -- Management Accounting -- Absorption vs Marginal Costing
According to Hilton, Maher & Selto (2008, p. 5), “Cost management is a philosophy, an attitude, and a set of techniques to
9 Pages(2250 words)Essay
Absorption Costing versus Variable Costing
The absorption costing technique is more favourable as the profits estimated under this system are more accurate. Variable costing is seen to inflate expenses and reduce the level of profits. Both the methods
6 Pages(1500 words)Essay
Let us find you another Essay on topic The difference between concepts of Absorption costing and Variable Costing for FREE!
Contact us:
Contact Us Now
FREE Mobile Apps:
  • About StudentShare
  • Testimonials
  • FAQ
  • Blog
  • Free Essays
  • New Essays
  • Essays
  • The Newest Essay Topics
  • Index samples by all dates
Join us:
Contact Us