Andrew Jarvis started his manufacturing business earlier this year and has been preparing management accounts using variable (marginal) costing. He has approached you as a Certified Chartered Management Accountant, to help his finance team prepare annual financial statements. As part of your discussions with the company’s finance team, you mentioned that you will use absorption costing to prepare the financial statements. Peter Cullen, the Finance Manager, said that he was unfamiliar with this method of costing and has asked you for more information about it. REQUIREMENT: Draft a Report for Peter Cullen that: a) Describes and explains the basis of variable (marginal) and absorption costing systems. b) Explains the effect on profit of using variable (marginal) and absorption costing. c) Outlines TWO advantages and TWO disadvantages of both variable (marginal) AND absorption costing systems.
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
Andrew Jarvis started his manufacturing business earlier this year and has been preparing
REQUIREMENT:
Draft a Report for Peter Cullen that:
a) Describes and explains the basis of variable (marginal) and absorption costing systems.
b) Explains the effect on profit of using variable (marginal) and absorption costing.
c) Outlines TWO advantages and TWO disadvantages of both variable (marginal) AND absorption costing systems.
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