Cost Method
Cost Methods
ACC/561
September 4, 2013
Cost Methods
Absorption costing is a process in which you relate a portion of your fixed overhead costs to the manufacturing product cost. This process will be done on a per unit term. Divide the fixed costs by the number of units manufactured and sold over the period of the term. This will give you the cost of per unit for the amount made and the amount. With the variable costing unlike the absorption costing you will use the fixed overhead, instead of the per-unit. The variable costing you would include all of your supplies, raw materials and shipping. You will need to add all of your fixed overhead for the entire period. Since this is the variable cost you will not calculate these figures on a per-unit basis, but a lump sum.
One of the advantages of absorption costing offers is when an organization does not sell all of it manufactures products during the period they will have goods left in inventory. Since absorption costing goes off of per-unit sales your product in storage will have a value that contains part of the fixed overhead. The expenses of the product will not show until you sell the item give you an opportunity to improve the profit for the account period. One of the benefits of variable costing is that after all the bills have been paid for the period it will show the profit earned. Since some items are in inventory you will not see revenues for those products, but you will show that your expenses have been paid on during the account period. In this case I think it would be better to use variable costing. I like the idea that you still pay for the inventory even though it is storage and once it is gone out of inventory you will have extra income in the end. When a competitor is submitting a lower bid for my product the best decision would be to use variable costing. When using absorption costing this will show an inflated price. With variable costing when you sell the
ACC/561
September 4, 2013
Cost Methods
Absorption costing is a process in which you relate a portion of your fixed overhead costs to the manufacturing product cost. This process will be done on a per unit term. Divide the fixed costs by the number of units manufactured and sold over the period of the term. This will give you the cost of per unit for the amount made and the amount. With the variable costing unlike the absorption costing you will use the fixed overhead, instead of the per-unit. The variable costing you would include all of your supplies, raw materials and shipping. You will need to add all of your fixed overhead for the entire period. Since this is the variable cost you will not calculate these figures on a per-unit basis, but a lump sum.
One of the advantages of absorption costing offers is when an organization does not sell all of it manufactures products during the period they will have goods left in inventory. Since absorption costing goes off of per-unit sales your product in storage will have a value that contains part of the fixed overhead. The expenses of the product will not show until you sell the item give you an opportunity to improve the profit for the account period. One of the benefits of variable costing is that after all the bills have been paid for the period it will show the profit earned. Since some items are in inventory you will not see revenues for those products, but you will show that your expenses have been paid on during the account period. In this case I think it would be better to use variable costing. I like the idea that you still pay for the inventory even though it is storage and once it is gone out of inventory you will have extra income in the end. When a competitor is submitting a lower bid for my product the best decision would be to use variable costing. When using absorption costing this will show an inflated price. With variable costing when you sell the