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

Control-role of management accountant , Control Control includes a ...

Control Control includes a comparison of actual performance with the plan so that deviation from the plan can be identified and corrective action taken. It can be define

Objectives of working capital decisions, After going through this section, ...

After going through this section, you must be capable to: Know the concept and characteristics of working capital; Identify with the difference among net working capital

Multiple regression, MULTIPLE REGRESSION The least square regression eq...

MULTIPLE REGRESSION The least square regression equation discussed above was based on the assumption that total cost was determined by only one activity based variable. However

Advantages of marginal costing, Problem Marginal costing plays a major ...

Problem Marginal costing plays a major role in making certain decisions. It provides information to management regarding the behaviour of costs and the incidence of such costs

Accounting for business enterprise, a)      Calculate  and  discuss  the ...

a)      Calculate  and  discuss  the  nature  and  role  of accounting  for  business enterprise.  b)      Determine and discuss  the desirable qualities  expected from the prep

Extra shift decision, EXTRA SHIFT DECISION These decisions are concerne...

EXTRA SHIFT DECISION These decisions are concerned with whether or not a company should work for 8 hrs, 16hrs, or 24 hrs a day or week days only or weekends also.  The factors

Classification of costs, identify and explain the many classification of co...

identify and explain the many classification of costs for planning, control,performance evaluation and decision making.

Gross working capital, Financial decisions are depends on specific consider...

Financial decisions are depends on specific considerations the major being the cash flows, liquidity and cost. Short-term working capital decisions or financial decisions are diffe

Profi t Planning, SK 2 Chapter 10: Master budgeting Objective How organisat...

SK 2 Chapter 10: Master budgeting Objective How organisations strive to achieve their financial goals by preparing a number of budgets that together form an integrated business pla

What are the main limitations of breakeven charts, QUESTION 1: Part A ...

QUESTION 1: Part A What are the main components of a set of Financial Statements and what are their respective purposes? Part B Trial balances of Hans Ltd on 30 Ju

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