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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.
Acceptance and Allocation of Resources Managers, subsequent a review and analysis of all decision packages, will establish the level of resources to be assigned to each decisi
What have to Focus on Traditional standard costing In traditional cost systems focus is to meet standard cost measurement by avoiding unfavorable variances. Under kaizen coat
Std error of the slope (Sb) Correlation coefficient measures the degree of association between two variables such as the cost and the activity level. The standard error of ‘
Dynamic programming It is an extension which finds solutions to problems involving a number of decisions which have to be made sequentially. For example, the amount of a produc
Improvement in product design may result in cost reduction illustrated below: 1) Material cost : change in design of the product may result in saving in material cost. Economi
EVALUATION OF THE REGRESSION MODEL The regression equation calculated above was based on the assumption that cost varied with the units produced. However, a number of different
BENCH MARKING In the current business environment, organizations are under a lot of pressure to improve performance and that of their divisions or subsidiaries. Bench marking i
Z or t Statistics If n ≥30 we use Z, if, n Ho: B = O that is, there is no relationship between X and Y HA: B≠ O There is a significant relationship between X and Y The l
ARR gives a fast estimate of a project's value over its useful life. ARR is derived by determining profits before taxes and interest. ARR is an accounting technique used fo
The subsequent short-term investment opportunities are obtainable to companies in India to invest their temporary cash excess. a) Treasury Bills: Treasury Bills are short-term
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