ACC 561: Principles Of Macroeconomics
Efrain Vazquez Jr
Variable or Absorption Costing Method
ACC 561: Principles of Macroeconomics
October 22nd, 2014
Instructor: Paula White
Variable or Absorption Costing Method
*After completing the Exercise 19-17 in Wiley, I realized that not only is this truly difficult unless you have consistent hands-on training, I found the problem as well as many other problems in the assignment to be quite specialized. I would not be able to do it without hands-on training and believe that this class would have to be the first step of many on the path to understanding the assignment. Overall, I got the question wrong but I see the impact of each method and understand how each would work in a given situation.
In this case, would it be better
to use the variable or absorption costing method, and why?
I still don’t see the grand impact or true necessity of absorption costing and feel that variable costing would be able to provide a deeper image in how the costing method can affect the company. While almost all companies use both in a given time, they cannot be used in place of another as each one would be able to give a different set of data. In my personal opinion, I would say variable costing is much more useful than the absorption method in this problem.
What are the benefits of the two methods?
With absorption costing you are able to see a full detailed analysis of each product cost but there is less focus on period cost. This means that while you would understand a smaller dollar view of each product cost, your main focus would not be in the period cost and thus would often be neglected unless you scanned over to the variable costing sheet and saw what each period broke down to. Variable costing would show a broader perspective of the product costing and period costing and so you would be able to see a more general but not quite as accurate view of the company product costs.
Which method would lead to the best decision when a competitor is submitting a lower bid for your product?
If a competitor was lowballing my company into trying to push me out of sales, I would conduct an absorption costing sheet and see where my losses lie. What I mean by this is that I would seek where I could reduce prices to ensure a lower production cost while also operating in an aggressive selling stance to ensure lower costs and higher profits.
References
http://www.accountingformanagement.org/variable-vs-absorption-costing/
Variable or Absorption Costing Method
ACC 561: Principles of Macroeconomics
October 22nd, 2014
Instructor: Paula White
Variable or Absorption Costing Method
*After completing the Exercise 19-17 in Wiley, I realized that not only is this truly difficult unless you have consistent hands-on training, I found the problem as well as many other problems in the assignment to be quite specialized. I would not be able to do it without hands-on training and believe that this class would have to be the first step of many on the path to understanding the assignment. Overall, I got the question wrong but I see the impact of each method and understand how each would work in a given situation.
In this case, would it be better
to use the variable or absorption costing method, and why?
I still don’t see the grand impact or true necessity of absorption costing and feel that variable costing would be able to provide a deeper image in how the costing method can affect the company. While almost all companies use both in a given time, they cannot be used in place of another as each one would be able to give a different set of data. In my personal opinion, I would say variable costing is much more useful than the absorption method in this problem.
What are the benefits of the two methods?
With absorption costing you are able to see a full detailed analysis of each product cost but there is less focus on period cost. This means that while you would understand a smaller dollar view of each product cost, your main focus would not be in the period cost and thus would often be neglected unless you scanned over to the variable costing sheet and saw what each period broke down to. Variable costing would show a broader perspective of the product costing and period costing and so you would be able to see a more general but not quite as accurate view of the company product costs.
Which method would lead to the best decision when a competitor is submitting a lower bid for your product?
If a competitor was lowballing my company into trying to push me out of sales, I would conduct an absorption costing sheet and see where my losses lie. What I mean by this is that I would seek where I could reduce prices to ensure a lower production cost while also operating in an aggressive selling stance to ensure lower costs and higher profits.
References
http://www.accountingformanagement.org/variable-vs-absorption-costing/