Cost accounting refers to the procedures undertaken to measure and scrutinize the costs associated with production and delivery of different goods and services. This data is after that used to come up with financial statements which should be free of errors. It is crucial for organizations to utilize the different accounting costs since they aid them in the decision-making process in the day to day operations of the business. Some of these expenses include marginal costs, variable cost, opportunity costs, and absorption costs.
Marginal costs refer to the price of manufacturing an extra unit than the normal quantity during production. Consider the case of Samantha shoes whereby the produced shoes are of limited quantity. If they were to create more pieces than the regular amounts, then the surplus would be the marginal costs. Variable costs are dependent on the produced output. If the company were to produce more shoes, then they would require more raw materials in the initial stage of production. The production costs thus become variable due to the quantities of products manufactured.
Delegate your assignment to our experts and they will do the rest.
Opportunity costs refer to the next best substitute foregone. It is the sacrificed value, consider Samantha Shoes choosing to invest in a given shoe type other than in producing a different one. One type of shoe may be more profitable than engaging in the production of a different design. Absorption costs, on the other hand, includes all factors that influence the direct costs in the process of production. It would include factors such as labor, power, utility costs, and any other expenses incurred during the manufacture of the shoes in the company.
If the company were to adopt the absorption costing model during price determination, they are bound to increase their income by far as compared to using variable costing. The former is inclusive of all costs met during goods production. It means that the variable costs are also considered hence making it more convenient for the company. In addition to reviewing the output, the other secondary factors involved in the process are included making it opportune.
