Absorption Costing In Managerial Accounting

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Absorption Costing System Absorption costing is a managerial accounting cost method where it gathers all of the manufacturing expenses and allocate them to the actual product. In other words, it means that all the expenses incurred with the production, such as all the raw materials that is required to make the product, the direct labor needed in producing the product and both variable and fixed overhead costs, are all involved in the final cost of the product. For example, think about it like this, if Panasonic used absorption costing systems when they are setting a value for their hair dryer, the cost of the product would comprise the following: the raw materials needed to manufacture the hair dryer, the wages paid to employees to produce…show more content…
Normally when the volume of output increases, it results in the reduction of the unit cost and when the output reduces this results in an increase cost per unit, this is due to presence of fixed expenses. It is not practical to consider It isn't polite to consider a manager responsible for costs over which he has no control of. When he discovers that he can't control some portion of the expenses which he is entrusted with, his sense of responsibility for controlling his direct cost some way or another may appear to diminish. So, this becomes difficult for comparison and control of…show more content…
In other words, Just in time inventory refers to an inventory management system where inventory are readily available at the time when its needed in the production process to meet the demand but not to a point of excess where it is need to stockpile the extra inventory. Inventory maintenance takes time and it could turn to be expensive, this is what motivates industries to implement Just in Time programs. For example, to understand better, lets assume that Company A is a small car manufacturer, On Wednesdays they assemble the car bumpers, and on Fridays they set the windshields. If the company is using just in time inventory method then the company might have the parts delivered exactly one day prior to the requirement. So, the bumper would arrive on the Tuesday and the windshields on Thursday. Features of JIT: Some of the key features of this system are that only few reliable vendors exist, who can deliver high quality raw materials within a short period that to in perfect condition. Secondly, since there will not be any stockpiling, the transportation cost that is involved in the movement of inventory from the storage unit to the manufacturing site can be avoided. And the other feature is that the production cycle gets shorter, the reason being disturbance due to delays

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