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

Management Accounting - Essay ExampleYou should refer in your answer to parts (a) and (b) of the capitulum which should be admitd in the appendices to the report. In the absorption costing system, all the three harvestings seem to have made a substantial profit (BALAKRISHNAN, SIVARAMAKRISHNAN, & SPRINKLE, 2008, pp56-67). The unwrap issue with absorption costing systems is with timing fixed manufacturing command processing budget items costs are charged against receipts when units are sold. As seen in (a) above, all manufacturingoverhead costs are included in thecalculation of product unit cost. This forms the basis of the costing system in absorption costing. All of a productsmanufacturing costs, both uncertain and fixed,are said to be absorbed by the product. Under absorption costing, a certain amount offixed manufacturing overhead cost is applied to each unit of output. As with the case in (a) above, under absorption costing unit manufacturing costincluded instantly materia l, require labour, appliedvariable manufacturing overhead and appliedfixed manufacturing overhead. Consequently, when each of theunits is sold the fixed overhead cost per unit isincluded in the expense constitute 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 hand, we can include only thevariable manufacturing costs in product unit costand to treat fixed manufacturing overhead asa period cost i.e. as an expense on the incomestatement as the case in (b) above. This system is known as variablecosting also known as direct costing. We willnow examine affects profit determination (BHATTACHARYYA, 2011, pp45-100). Fixed manufacturing cost is not treated 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 instrument or cost of goods sold under this method does not agree any fixed overhead cost (LUCEY, 2003, pp78-89). Under variable costing, all variable costs of production are included in product costs. therefore 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 heart and soul production costs. With variable costing, the total amount of fixed manufacturing overhead cost isexpensed in the current accounting period, irrespective of how many