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Cost Control and Performance Management: Full costing versus variable costing: Does the choice still matter - Essay Example

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In every company the budget should be efficiently and effectively managed. According to the present trends, most of the companies show their concern for cost management. The major objective of…
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Cost Control and Performance Management: Full costing versus variable costing: Does the choice still matter
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Download file to see previous pages The financial decisions or the management of cost in an organisation involves certain objectives such as, deciding the selling price, cost control, motivation towards the organisational goals, ascertaining the profit out of the cost, providing ‘decision-making’ information and also it helps in preparing the financial statements and reports (National Institute of Open Schooling, 2011).
The management of cost accounting process is an important aspect of the ‘information system’ of an enterprise. It involves the tracking of costs and also the tracking of expenditures and cost through certain systems. There is no set regulation to keep an eye on the flow of the internal cash but there are certain methods to execute the function of tracking the cost internally. An effective cost accounting would help an organisation to predict the profitability based on their current activities as well as the future activities (Conway-Schempf, 2011).
There are two kinds of approaches in cost management i.e. full costing and variable costing. Full costing is also known as absorption costing. Full costing method contains several factors like manufacturing costs allocation, and variable costs inclusion such as, raw materials. It also includes fixed costs such as, buildings and machineries, and also costs regarding individual finished products. For an example, if the amount of variable cost to manufacture a cricket bat is $3 and fixed overhead cost for it is $1 million for one year, then a firm which manufactures a million cricket bats should allot $4 as total cost for each cricket bat sold (Taylor, 2011).
Full cost accounting or full costing is the method which describes the ways by which the price for the services and the goods are determined and the ways by which the price of goods would replicate the actual cost of production. It involves the cost of society and environment as well. Considering the full costing process, the GDP ...Download file to see next pagesRead More
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