ACCOUNTING

Full Costing Verse Variable Costing: Does The Choice Still Matter?

Table of Contents

Introduction1

Discussion1

Full Costing (Absorption Costing) Vs Marginal Costing1

Conceptual Framework and Key Assumptions of the Approaches2

Comparison in Absorption Costing Vs Marginal Costing3

Relative Strengths and weaknesses of Absorption Costing Vs Marginal Costing4

Does The Choice Matter? - A Critical Response7

References11

Full Costing Versus Variable Costing: Does the Choice Still Matter?

Introduction

This assignment is based on developing an understanding about full costing versus variable costing in a holistic context. We will look into the practices of cost management and see if choosing between the two methods creates any difference or advantage for the organization.

Discussion

Full Costing (Absorption Costing) Vs Marginal Costing

There are times when a business activity needs changes while it is still ongoing to enable the company to still hit its goals. Sometimes, the changes are still being proposed and ideas are still being brainstormed in meetings. These changes are important because things may not go well in a business venture. In the course of activity of any given business, the expenses that are based upon how the business is going are called variable costs. When the ideas and other proposed alternatives in a necessary decision is being collected and presented, this process is called full cost accounting (Zambon, Zan, 2000, P. 99-822).

The collecting of data and presentation of proposals about the business in the company is called Full Cost accounting. This is where the information on the environmental, economic, social cost, benefits and advantages of a certain decision is being collected and presented. The cost, benefits and advantages being presented are known as the 'triple bottom line.' The International Organization for Standardizations created standards on how the Full Cost Accounting be utilized in order to maintain and improve environmental concerns.

Understanding how variable costs work can help you in handling your business properly. This is why knowing the deeper definition of variable costs can be very profitable. These costs are the expenses that are in proportion with the businesses activities. Whatever changes that happen to the business, affect the variable costs. The total of the marginal cost over all the units produced in a company is the variable cost (Yu-Lee, 2005, p. 21-26). An example of this cost is when a manufacturing company increases its productions, buying raw material will also increase, and buying raw materials will decrease if otherwise. The expenses in the raw materials are called variable costs. Other expenses that can be considered variable costs are the electricity, the maintenance fee, and other electrical equipment. The more activities a company has, the more production it can create, and however, this also means the more expenses or variable costs are needed. Salary for the employees of the company may also be considered as variable costs.

These are some of the main differences of the variable costing and full costing. The variable costing is the expense, while the full costing is the proposition. They are both used to make business matters successful (Williamson, Sherrard, 2002, p. 1-5).

Conceptual Framework and Key Assumptions of the Approaches

Assuming that the ...