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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.
What is Sunk cost A cost has been incurred in the past or sunk in the past and is not relevant to the particular decision making, is a sunk cost. If it is decided to replac
You are charged with describing the important considerations in the decision-making process to upper management. In your response, be sure to include the following: • A descript
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ALGEBRAIC ANALYSIS The supposition of linear cost behavior allows use of straight-line graphs and simple linear algebra in cost-volume study. The net cost is a semi-variable c
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Explain the tools of management accounting
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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
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