Absorption cost-variable cost-transfer pricing methods, Managerial Accounting

Assignment Help:

Absorption cost

Absorption, or full cost systems, transfer the full cost of the supplying department to the receiving department. Where a profit is to be allowed to the supplying division, it is necessary to determine a policy which can be consistently applied. Typical systems may allow a profit based on cost, sales or investment.

Variable cost

Variable cost based systems overcome the decision-making problem of full cost system. Transfers from one division to another are made at variable cost. Standard variable cost overcomes the problem of passing on inefficiencies and diseconomies from division to division.

There are two ways by which profits can be created at a divisional level. The first approach is to apply the principles illustrated in A to marginal costing. Transfer pricing schemes would allow a suitable level of contribution, as measured in terms of contribution on sales ratio. An alternative approach is to create a two-part charging system. One part of the scheme would transfer a lump sum, representing an allowance for divisional fixed cost once a year to allow each division the chance of creating a final profit. The second part of the scheme would value transfers at variable cost.


Related Discussions:- Absorption cost-variable cost-transfer pricing methods

Explian national income and economic welfare, Question 1: (a) Discuss t...

Question 1: (a) Discuss the main features and problems which Mauritius has to face as a small island developing country. (b) What are the factors which have led to the f

What are selling and distribution expenses, What are Selling and distributi...

What are Selling and distribution expenses? Selling and distribution expenses incurred for the marketing of a commodity, for securing orders for the articles, dispatching goods

Strategic plan, How to write introduction on strategy plan

How to write introduction on strategy plan

Illustrate what the traffic can bear pricing, What the traffic can bear pri...

What the traffic can bear pricing Pricing based on what the traffic can bear is not a sophisticated method. It is used by retail traders as well as by some manufacturing firms.

Illustrate the marginal cost pricing, Marginal cost or incremental cost pri...

Marginal cost or incremental cost pricing method: Here the company may work on the premise of recovering its marginal cost and getting a contribution towards its overheads. Thi

State direct material cost standard, State Direct material cost standard ...

State Direct material cost standard The determination of direct material cost standard would involve: a) Determination of quantity standards and b) Determination of pric

What is kaizen, What is kaizen Kaizen is the Japanese term for continuo...

What is kaizen Kaizen is the Japanese term for continuous improvement. The kaizen concept was pioneered by in Japan by Toyota as daily challenge to all its to improve their pro

HW, Raner, Harris, & Chan is a consulting firm that specializes in informat...

Raner, Harris, & Chan is a consulting firm that specializes in information systems for medical and dental clinics. The firm has two offices—one in Chicago and one in Minneapolis. T

Industrial Grinders, accepted#Regarding the Overhead costs, these are alloc...

accepted#Regarding the Overhead costs, these are allocated based on Direct Labor;

Identify and briefly describe four trends in macro market e, identify and b...

identify and briefly describe four trends in macro market environment which influence on the selected industry?

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd