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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.
Cost-Volume-Profit assumptions The main assumptions required in C-V-P analysis are: 1) The relationship holds merely within the appropriate range. The relevant range is a ba
Introduction of zero base budgeting Steps involved in the introduction of zero base budgeting 1) Corporate objectives should be established and laid down in detail 2) Dec
Steps of Graphic Analysis There are four steps in using graph paper to study cost-volume relationships: Step 1: Compute the scale which you will use: Volume is considered
The revolving credit facility will be specified by the banker to the customer through providing specific amount of credit facility for a continuous basis. The borrower will not be
GRAPHICAL METHOD Graphical methods can be used in games with no saddle points and having pay off m X 2 or 2 X n matrix. The aim is to substitute a much simpler 2 X 2 matrix for
Cretin Enterprises uses a predetermined overhead rate of $21.40 per direct labor-hour. This predetermined rate was based on a cost formula that estimated $171,200 of total manufact
Select the cost driver(s): This might also be termed to as independent, explanatory or predictor variable. A cost driver can be stated as any factor whose change causes a chang
Implementation of ABC analysis The following steps are included in implementing the ABC analysis: 1. Categorize the items of inventories, establishing the expected use in un
INTERPRETING THE SIMPLEX TABLEAU We can now see that our attention must be directed to reading, interpreting and analyzing the (simplex) results. It is erroneous, however, to a
Computation of Working Capital Required 1. Operating Cycle Period = M+W+F+D-C = 101.38 +2
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