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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.
how company apply marginal costing techniques show with an example
Assumption of break even analysis The break even analysis is based upon the following assumptions : 1) All elements of cost, i.e., production , administration and selling di
1. If the marginal cost of producing a good is increasing as a firm produces more of the good, then which of the following must be true? a. AFC is rising b. AVC i
Computing equivalents units and assigning costs to completed units and ending work in process; no beginning inventory or cost transferred in (30 -45min) Sue Electronics makes CD
500 000 debentures are in a company at a coupon value of R50 each in issue. During each financial year, interest on these debentures is paid in arrears and in equal quarterly inst
Difficulties in cost reduction 1) Resistance by employees to pressure to reduce cost usually because the nature and purpose of the campaign has not been properly explained to t
WHAT IS PRIME COST?
Consider the following quality data for three different manufacturers of automobile weather-strips: Weather-strip Bulb Dimension Specification y=20 +or- 4mm
Ask question Toll House makes chocolate chip cookies. The cookies pass through three production processes: mixing the cookie dough, baking, and packaging. Toll House uses process c
INVENTORY CONTROL DECISIONS Factories, workshops, engineering departments handle raw materials used in the manufacture of products. The main objectives in handling these materi
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