Product costing in the 1990s

Article Abstract:

Activity-based costing (ABC) is an improved method of managerial accounting for product costing for organizations using advanced manufacturing technology. ABC, by being able to give managerial accountants a better understanding of cost behavior, gives better estimates of overhead costs. Cost behavior is understood as emanating from the forces behind costs, which are known as 'cost drivers'. Cost drivers are transactions or activities that significantly determine costs, including direct labor hours, machine hours, or materials consumed. A system based on measuring the transactions of cost drivers can be expensive and may exceed the benefits of adopting the system, but will eliminate the distorted product costs offered by traditional volume-base overhead allocation accounting systems for organizations producing a great range of both high- and low-volume products.

Managerial accounting

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The mythology of constant marginal costs

Article Abstract:

Marginal cost accounting is widely used in Great Britain to determine economic relationships among expenses, volume of production and profits for corporations with labor-intensive products. Marginal costs consist of direct labor expenses and fluctuating overhead costs related to production. According to marginal cost theories, variable costs and revenues earned are proportional to output volumes; consequently, costs are deemed to rise and production increases and earnings go up, meaning that marginal costs remain relative constant. The validity of this constant marginal cost concept is reviewed. The research indicates that the constancy of marginal costs is highly questionable, and accountants are warned against using this accounting technique. Costs are linear only in certain production environments.

United Kingdom, Accounting, Labor costs, Cost control, Current value accounting, Break-even analysis

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Pricing: formula to tame those wayward costs

Article Abstract:

Absorption cost pricing as an accounting technique for determining product pricing structures is discussed in relation to overhead expense allocations. Formulas are provided for cost-based pricing given various conditions of capacity utilization, cost recovery accounting, and demand curves.

Pricing

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