Management Accounting Essay Example | Topics and Well Written Essays - 1500 words

Management write up - Essay ExampleYou should refer in your answer to parts (a) and (b) of the question which should be include in the appendices to the report. In the absorption costing system, all the three products seem to have made a hard profit (BALAKRISHNAN, SIVARAMAKRISHNAN, & SPRINKLE, 2008, pp56-67). The key issue with absorption costing systems is with timing decided manufacturing smash-up costs be charged against revenue when units ar sold. As seen in (a) above, all manufacturingoverhead costs are include in thecalculation of product unit cost. This forms the basis of the costing system in absorption costing. on the whole of a productsmanufacturing costs, both variable and fixed,are said to be absorbed by the product. Under absorption costing, a certain amount offixed manufacturing overhead cost is applied to all(prenominal) unit of output. As with the case in (a) above, under absorption costing unit manufacturing costincluded direct material, direct labour, applie dvariable manufacturing overhead and appliedfixed manufacturing overhead. Consequently, when each of theunits is sold the fixed overhead cost per unit isincluded in the expense Cost of goods sold as shown in the tables above (BALAKRISHNAN, SIVARAMAKRISHNAN, & SPRINKLE, 2008, pp56-67). Therefore, apportioning overheads using absorption costing is profitable for all the three products. On the other(a) hand, we can include plainly thevariable manufacturing costs in product unit costand to accost fixed manufacturing overhead asa period cost i.e. as an expense on the income financial statement as the case in (b) above. This system is know as variablecosting also known as direct costing. We willnow examine affects profit determination (BHATTACHARYYA, 2011, pp45-100). Fixed manufacturing cost is non hard-boiled as a product costs under variable costing. Rather, fixed manufacturing cost is treated as a period cost and, like selling and administrative expenses, it is charged off in its entirety against revenue each period. Consequently the cost of a unit of product in size up or cost of goods sold under this method does not contain any fixed overhead cost (LUCEY, 2003, pp78-89). Under variable costing, all variable costs of production are included in product costs. Thus if the company sells Baltic at 217.25 unit of product, only 217.25 will be deducted as cost of goods sold, and unsold units are carried in the balance sheet inventory account at only 217.25. This realizes a loss of 75.13. This is a result of excluding fixed production costs when costing yet they are part of the total production costs. With variable costing, the total amount of fixed manufacturing overhead cost isexpensed in the current accounting period, irrespective of how many