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Company using absorption costing

Anonymous

∙ 13y ago

Updated: 8/17/2019

It is old costing technique & it is replaced by activity based costing

Wiki User

∙ 13y ago

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Q: Company using absorption costing

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Differences between costing method and costing techniques?

Methods of Costing The cost of products or services is determined using several methods. The use of a given method is dictated by such factors as: the nature of cost units, the production process, the mode of cost accumulation, the duration of work etc. The following are the well established methods of costing a. Job / Batch costing b. Contract costing c. Process costing d. Service costing Techniques of Costing Irrespective of the type of costing method being applied there are various approaches that could be adopted. These are:  Full Absorption costing  Marginal costing  standard costing using  absorption costing  marginal costing

Difference between activity based costing and absorption costing?

In Activity based costing all overheads are charged to function or department based on activities they perform while in absorption based accounting, overheads are apportioned using some kind of base rate like labor hours or machine hours etc.

Determining the cost of one item?

Well to determine the cost of one item you have to first decide which costing method your are using. Marginal or Absorption costing. Nowadays companies are using ABC (Activity Based Costing). ABC is best for determining most accurate cost as compared to other methods.

What type of companies would benefit using the activity based costing?

Following type of companies1) Those who want to perform better2) Those who want to be competitiveWhat specific types of companies would be better served with variable costing as opposed to absorption costing? Why?

What are the advantages of using absorption costing?

One advantage of using absorption costing is that if you have items still in inventory at the end of an accounting period, you don't have to report the expense until the items are actually sold. The disadvantage is, this method can artificially increase your profit figures because the profit-and-loss statement isn't going to reflect all the expenses you had during the accounting period.

Difference between absorption costing and marginal costing calicut uviversity?

The difference between marginal and absorption costing is that when preparing a statement based on marginal costing, you would subtract all variable costs, production or otherwise, from the sales revenue, to give the contribution, from which you subtract all fixed costs (production and non-production) to give profit made.Using absorption costing however, you subtract production costs (this will include both variable and fixed production costs) only from sales to give you the gross profit, from which you then subtract all non-production costs (fixed or variable) to give net profit.The final profit using both methods is always the same.

What is blanket overhead absorption rate?

•The objective of absorption costing is to include in the total cost of a product an appropriate share of the organization's total overheads. •An appropriate share is generally taken to mean an amount which reflects the amount of time and effort which has gone into producing a unit or completing a job. •The theoretical justification for using absorption costing is that all production overhead are incurred in production of output so each unit of the product receives some benefits from these cost. •Therefore each unit of output should be charged with some of the overhead costs.

How is ABC different from Traditional costing system?

In traditional costing system overheads are spread over volume of production by using spread rate which is called blanket rate or absorption rate while in ABC costing costs are allocated on the bases of actual activity performed in specific cost centers so this is a accurate method for allocating costs according to activity performed and not with just any estimated rates

Why do some companies find it difficult to use or inappropriate to implement a standard costing system?

A company that makes a variety of highly individualized and specialized made-to-order goods, using a variety of inputs, would find it more difficult to inplement standard costing than would a company that makes a simple, highly stardardized product. Standard costing can also be inappropriate when the cost of inputs fluctuates wildly.

Why does over costing and under costing occur with traditional costing system?

Over costing and under costing occurs because overhead cost is applied first using some ratio to find out the cost of product before the process of production done and actual cost found.

If a manufacturing company is using activity based costing for internal purposes only then organization sustaining overhead costs should not be allocated to any of the products true or false?

True

Difference between blanket and overhead absortion rate?

The advantage of using blanket overhead absorption rate is that budgeting and costing become simpler. One disadvantage however is that it is harder to know which of the costs centers is consuming most of the money allocated.