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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.
Disadvantages of activity based costing 1) It is essentially not the panacea for all ills. 2) It absorbs a lot of resources. 3) Too much emphasis on customer viability c
what is a base of managerial accounting
Illustration: ABC analysis Combine items on the basis of their relative value to form three categories—A, B and C. The data in the table below illustrates the ABC analysis.
Categories of zero base budgeting The preceding discussion will reveal that zero base budgeting is based primarily on: 1) Development of decision units 2) Identification
What the traffic can bear pricing Pricing based on what the traffic can bear is not a sophisticated method. It is used by retail traders as well as by some manufacturing firms.
Change of Technology: Changes in technology commonly leads to improvements in the efficient processing of raw material, reduce in wastages, more speedy production and higher produ
Find the value of the following: a. If the total assets are Rs. 87,000 and the liabilities are Rs. 47,000, find out the amount of capital. b. If the capital of propriet
Once the credit information is accumulated the subsequent step is to analyze the gathered information and isolate those matters that may need further investigation. The factors whi
Characteristics of irrelevant costs
ADVANTAGES OF "ABC ANALYSIS" The advantages derived from this analysis and its consequent follow up are summarized below: 1) Facilities selective control and thereby save va
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