Costing methods, variance analysis and continuous improvement

address mode actings, variance synopsis and continuous improvement constituteing MethodsAssignment 1 approach AccountingDBSM703 Business Financial Principles and Techniques13 November 2014Marginal appeal and Absorption bell (Questions 12)Definition.Marginal be is a system for computing be which takes into account only the varying toll involve in the manufacturing butt on. Absorption cost is a costing method which considers any be involved in the yield regardless of its nature whether it is change open or fixed cost. (Averkamp H. , 2014)Differences. The two methods can be distinguished from separately other by means of several(prenominal) notable differences. First is through with(predicate) its cost concentration. Marginal costing is mainly concerned about variable cost plot absorption costing considers whole fixed and variable cost incurred by the giving medication through all its activities.Second, is through its use. Marginal costing is used by administr ations to aid them in decision making and telephone line planning. Through its minute presentation of cost or expenses, companies will be able to c arefully study its mental impactes to help them identify areas for improvement and for hail quality oversight. Absorption costing is used mainly for external financial and income tax promulgateing. It is similarly a tool for the organization in presenting the genuine valuation concerning its overall operation (involves inventory, fixed and variable costs, etc.) to their investors. (Averkamp H. , 2014)Similarities. Both write up system are sound in presenting the existing valuation of an organization with regards to its operation by distracting manipulation and misdeclaration of profit or loss by the caller. The two system are also similar through its discussion of manufacturing and non-manufacturing costs.3. Three Major Influences in Pricing DecisionCustomer remove. Demand is in truth important in all the major business activities of the confederacy from the sourcing of raw materials, product aim and manufacturing. For example, there is a very(prenominal) spicy demand from customers for high quality performance cars. For car manufacturing companies, this demand would inculpate sourcing high quality materials, and more comprehensive production and testing crop to ensure product quality which would also lead to higher(prenominal) prices. However, it is very important that despite of the rise in production expenses, companies should work their trounce not to price their product above the market for them to remain competitive. To be able to do that, companies need to regularly conduct market research, surveys, market and advance business planning to help the beau monde design its manufacturing litigate that will enable them to provide quality products at a honest price. (Hilton)Costs. In most cases, companies price their product based on its production costs. For example, in the manufacturin g of high-quality performance cars, the main de landmarkinant of price would be the heart of cost incurred in its production per social social unit. Again, to remain competitive and ensure profitability, the fellowship should determine how much markup they are going to charge on conduct of the production cost and in esteem of other indirect costs involved (holding costs, marketing and other expenses). (Hilton)Actions of Competitors. To remain competitive, the company should always be on the lookout on its competitors activities. In the example given above, if a competitor lowers down the price of its high-quality performance car, it is very important that the company do the same to avoid the risk of losing its share in the market. However, the company should exercise caution in following the actions initiated by its competitors. In this aspect, it is very important for the company to define its product and highlight its strong points (technology and materials used, technologi cal particular(prenominal)ations, safety f downures, etc.) to distinguish their product from that of their competitors thus providing them certain leverage to cut their pricing. (Hilton)Political, legal and reputation. Legal factor affect the pricing of commodities because of the need for companies to rent to the requirements of the law. Some business laws were crafted to prevent companies from colluding among themselves to manipulate prices and take advantage of consumers. Examples are the Oil Deregulation justness to prevent forming of cartels by petroleum companies and the Anti-trust Law to regulate competition and prevent monopoly. Political landscape in a country where the business operates also directly affects the pricing of goods and services. For example, in new-made Zealand due to the pressure brought by the extensive lobbying of rights group, environmental and health activists the judicature was forced to legislate and pass a bill that would impose higher taxes on tobacco and alcohol products resulting to steeper prices of the said commodities. Reputation also affect product pricing especially to those companies who have already complete a solid reputation for producing quality and high performance products. Companies homogeneous Apple normally set a higher price whenever they introduction a new product to the market regardless of competition. (Hilton)4. Cost markCost object is an accounting term used to refer to any item or product that has a cost of its own. The term whitethorn be used for items whose cost can be calculated through estimates, direct measurement or market valuation. (Schmidt, 2014)Examples of cost object includes function Car maintenance or repair service that has a specific cost for every service done.Product A bicycle. The cost for its development, design and production can be measured directly.Projects A construction upchuck with a specified cost for infrastructure design and implementation. divisions Marketing D epartment for which the cost of all its activities same(p) promos and advertisement is specified.(Schmidt, 2014)5. Direct and Indirect CostDefinition. Direct Cost are costs that can be considerably colligate to a cost object. Indirect Cost are costs that are related but cannot be easily and accurately bring togethered to the cost object eventhough the cost is incurred in producing the product. (Jan, 2013)There are several factors affecting the potpourri of costs. They are Materiality, Function and Information Gathering Technology.Materiality. The classification of costs as direct or indirect depends on the contribution, relevance, wedge and actual value of the cost to the end product. The greater the cost, the easier it is to establish the link to the final product. (eFinance perplexity.com, 2014)Function. Another factor that affects the classification of costs is on how the cost was used in intercourse to the major business activities of the company like in research and deve lopment, production, distribution, selling and administration. (Vivekanand, 2014) Information gathering technology. The continuous approach in information technology paved the way for the development of software system application that helps company easily trace costs. Nowadays, big companies emphasize the impressiveness of information attention and reporting system as an effective method that enables them to properly trace the smallest of costs. (eFinanceManagement.com, 2014)Opportunity CostOpportunity cost is the income or value that a company or person gives up in favor of one particular decision. (InvestingAnswers.com, 2014) For example, in the morning you have two choices to help you kickstart your day. One is to drink cup of coffee or to eat an apple. For you both has its benefits, coffee for your caffeine needs and apple as a healthy alternative. You choose coffee over apple. By choosing coffee, the benefit to your health that you can get by eating the apple becomes your opportunity cost.To avoid what economists says as decision making pitfalls, it is very important for managers to take into consideration opportunity cost or do a simple cost-benefit analysis in order for them to arrive at an intelligent decision. (UKEssays.com, 2014) Opportunity cost is also very important in helping companies evaluate their decisions for coming(prenominal) considerations especially when the alternative decision they give up turns out to be the better option. (InvestingAnswers.com, 2014)Management By Exception And divergence AnalysisManagement by exception is a management style that revolve aboutes on the areas of the organization whose plans are not working(a) according to expectation. The goal is to provide neighboring(a) attention to the problem by concentrating company resources like time, money and ride to help them strategically address the issue or problem. (BusinessDictionary.com) Most companies were able to identify specific areas in their business th at are not working according to plan with the help of variance analysis. Variance analysis is a method used by organizations in determining the difference in the midst of the well-worn cost and the actual cost. The higher the variance between the standard and actual cost means that an area in an organization is not performing as planned. (Ahmed, 2014)Standard Costing and Its Importance in formulation and ControlStandard Cost refers to the cost determined by the management based on available information concerning direct labor, materials and manufacturing overhead. This cost would coiffe as the benchmark for the companys spending in relation to its actual business operation. Standard costing is very important because it helps management in setting their budget, better understand the expenses that would concern their operation, and most of all for determining its projected income. During actual operation, standard costing provides an avenue for feedback to the management in cases where variances arise between the standard and actual cost. It allows them to immediately focus their attention in areas where there are large deviations in actual cost against the standard cost to help keep the operation on track and as planned. (Averkamp H. , 2014)Variance Analysis and Continuous ImprovementVariance analysis provides information that helps management measure the actual performance of divers(prenominal) areas in their organization against expectation. (AC SC = Unfavorable Variance ACJob Costing vs. lick CostingJob Costing is a costing method being used by companies producing unique products where the cost is measured depending on the production requirements (Materials, Labor, etc.) of each product or unit produced. Process Costing is an accounting method used by companies involved in portion production of identical products and using an established or fixed manufacturing process where unit cost can be calculated by dividing the amount of money cost with the ra dical quantity produced. (Heisinger Hoyle, 2014)The following are the differences between process costing and ponder costingApplication. Process costing determines the cost of the total number of units produced by batch. Job costing is used to determine the cost of every product or unit produced.Product Cost. In process costing costs are assigned to the process while in job costing costs are assigned to jobs.Time Frame. Process costing has a period for which costs are accumulated while job costing has no time frame. In job costing, costs are computed after each job is completed.Unit Cost Information. In process costing, units cost is derived based on the production cost report (Total Cost (VariableFixed)/ Total No. of Units Produced = Unit Cost). In job costing, unit cost is determined based on the total cost of the job per unit.(Accountlearning.blogspot.co.nz, 2014) (Heisinger Hoyle, 2014) Job Cost Sheet*$978.00/200 Units = $4.89 per unit Process Costing40,000/5000bottles = $8.0 0 / bottleSMK Pharmaceutical production cost for April13. Responsibility CentreA responsibleness centre is a unit in an organization tasked with a specific set of duties to help the organization effectively exercise incorporate over their business and to help them achieve both their long term and short term goal. Usually there are four responsibility center in every organization (Cost center, Profit Center, Revenue Center and enthronization Center). Each center is headed by a manager. (Barnat, 2014)Cost Center. A cost centre is responsible for managing costs. There are two caseful of cost under cost centre. They are Engineered Cost and Discretionary Cost Centre. Engineered costs are those cost that can easily be tie in with the cost centre (direct labor, direct materials and manufacturing overhead). Discretionary costs are costs that are allocated by the management on a discretionary nates (administrative cost, research and development, allowances, etc.). (Barnat, 2014)Profit Centre. The profit centres are like independent businesses deep down the organization. They are given autonomy in managing their own affairs from the strategic balancing of sales and expenses up to performing a more detailed management function like helping maintain quality, measuring employees productivity against wage, managing overhead expenses and everything that they can control within their unit. (Barnat, 2014)Revenue Centre. The bushel responsibility of revenue centre is to generate revenue for the company through sales of goods or services. Most organizations set periodic sales point (daily, weekly, monthly, etc.) that whether surpassed or missed serve as an indicator of the performance of the unit manager or the revenue centre. An example of revenue centres are the sacking shops by manufacturing companies. The main focus of these shops is to sell company products with little or no consideration at all on costs and marketing. (Wikipedia.org, 2014)Investment Centre. The responsibility of Investment centre is to generate returns of investment through effective asset management, increased sales performance and the proper management of cost and expenses.BibliographyAccountlearning.blogspot.co.nz. (2014). Retrieved November 12, 2014, from Accountlearning.blogspot.co.nz http//accountlearning.blogspot.co.nz/2010/10/differences-between-process-costing-and.htmleFinanceManagement.com. (2014). Retrieved November 9, 2014, from eFinanceManagement.com http//www.efinancemanagement.com/costing/costing-terms/211-direct-and-indirect-costsInvestingAnswers.com. (2014). Retrieved November 9, 2014, from InvestingAnswers.com http//www.investinganswers.com/financial-dictionary/stock-market/opportunity-co