Variable costing vs Absorption costing.

z. P2) High profits are the signal that consumers want more of the output of the industry.

1) If a monopolist's price is $65 a unit and its marginal cost is $25 for the last unit produced,

3. Fixed costs will often be irrelevant because they: A. B. C. D. Are fixed in amount. Are the same each time period. Typically do not differ between options. Are not committed.

21) Refer to the graph on the left. To maximize profits, this firm would produce:

7. Though numbers given in the cost data can not be contested, I would definitely contest the way total cost has been computed. The item 345 department operates within a large manufacturing facility that churns out number of other products too. Hence judging the profitability of item 345 on the basis of total cost is not practical.

This is an excellent short case to introduce the managerial accounting issues related to the "joint cost" problem. Classic microeconomics argues unequivocally that attempts to assign cost to individual products in a "joint" set constitute a complete waste of time--"just maximize the total revenue over the batch." Like the comparable adage to "price so that marginal cost equals marginal revenue," the economists' advice about joint costing is certainly accurate, given the assumptions, but not particularly useful in practice. Most managerial accountants, including this author, believe that there are important managerial issues involved in accounting for joint cost in real companies. This case covers those issues for a real company.

D. profits are driven to zero in a monopolized industry, but may be positive in a competitive industry.

b) In the case the company maximizes the production of Lx. When including fixed overhead in the unit profit calculation, S is shown to be unprofitable, which leads to company proposing that S should be

According to the case, cost control can be improved with the adoption of variable costing. Although costs can also be controlled when using absorption costing, it is easier to distinguish on the income statement which costs are variable and which costs are fixed when using the variable costing method. Since variable costs and fixed costs are controlled in different ways, it is useful to be able to analyze the costs separately in order to control them. For example, in absorption costing, the

In determining the fixed costs per unit for the period for absorption costing (not needed for variable costing since the entire fixed cost is expensed as a cost of the month, not a cost of units), you spread the fixed costs across all the units made. Since production was increased substantially, the fixed cost per unit was reduced:

Under absorption costing, fixed manufacturing overhead costs are included in product costs, along with direct materials, direct labor, and variable manufacturing overhead. If some of the units are not sold by the end of the

When a company uses absorption costing, both fixed and variable overhead costs are included in the product cost. Total variable costs for a company, including direct material costs and direct labor costs, increase as volume increases and vice versa. On the other hand, total fixed costs for a company are not based on volume. Although total fixed costs may increase or decrease over time, these fluctuations are not related to volume.

ABC should be distinguished from the traditional costing method. The traditional costing method (particularly the absorption costing) allocates direct costs to the corresponding products while the overhead costs for each set of products are allocated proportionately according to the proportion of chosen cost driver (Vazakidis & Karagiannis, 2011). By using the product cost systems, such as process costing, job costing, and activity base costing, managers can have well understanding about the cost allocation for their productions, so that they can make better decisions. Therefore, managers need to proper choice the product costing

* If sales volume remains the same from period to period, marginal costing reports the same profit in each period (given no change in prices or costs). In contrast, using full cost, profits can vary with the volume of production, even when the volume of sales is constant. Using absorption costing there is therefore the possibility of manipulating profit, simply by changing output and stock levels.

I think that following option A is most suitable because its cost can maximise the profit margin needed for the company in order to be a success.