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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.
Discretionary fixed costs and Semi variable costs Discretionary fixed costs are those which are incurred as a result of management discretion. These costs have two importan
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Private sector companies have multiple stakeholders who are likely to have divergent interests.( five stakeholder groups and discuss their financial and other objectives).
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What are the factors which led to the development of ABC: 1) Traditional costing fails to capture cause and effect relationship 2) Traditional costing often fails to highlig
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