Cost Accounting Research Paper Example | Topics and Well Written Essays - 1250 words

Cost Accounting - Research Paper Example Among the various costing methods, absorption costing and marginal costing are the two important tools that are widely used for managerial decision making. This piece of research paper describes the differences between these two methods and explains the arguments for and against these costing methods. Marginal Costing As Lucey and Lucey (2002, p. 296) defined, marginal costing is an accounting system in which variable costs are charged to some specific cost units for a period of time and fixed costs are fully written off against the total contribution, which is the value of sales less variable costs. Marginal costing is widely used and is considered to be more effective and useful in the valuation of stocks and in the calculation of total costs of goods sold because of that only variable manufacturing costs are considered in this type of costing method. Variable manufacturing costs are considered in this costing method as they are attributed to the cost units and fixed costs are igno red. Marginal cost and variable production costs are more often used interchangeably. When ever an extra one unit of the output is manufactured, the additional cost incurred for manufacturing that one extra unit will be ultimately variable because the fixed cost remains always constant. Weygandt, Keiso and Kimmel (2005, p. 265) pointed that fixed manufacturing costs are never considered to be production costs and these are not considered in the inventory valuation as well as in management’s decision making process. Marginal costing is a strategic managerial accounting tool that can be used to disseminate managerial information about costs incurred in the manufacturing and other business operation and relationship between some of the significant elements such as profit, volume, costs and efficiency. Glautier and Underdown (2001, p. 441), found that the very basic advantage of using marginal costing is that it is an easy success-pathway for the management to make proper decisio n and achieve business success accordingly. Absorption Costing Absorption or full costing, in contrast, considers all the manufacturing costs including both variable and fixed costs. All manufacturing costs are fully attributed and absorbed to the final output (Jawahar-Lal, 2008, p. 627). direct costs are attributed directly to the cost units and thus they can easily be identified along with the output, whereas manufacturing overheads are attributed to the product and other overheads including administration and selling expenses. As Williams, Haka and Bettner (2004, p. 923) argued, the use of absorption costing will be very effective when the variable costs such as direct material costs and direct labor costs are directly charged to the product and fixed costs are charged proportionately to different products manufactured during a particular period of time. One of the criticisms that absorption method of costing faces is that it presumes prices as the functions of the costs and thus demand of the product is less considered. It includes past costs that are relatively less relevant to the current pricing and is therefore relatively less dependable for managerial decision making. Absorption costing may not be an

Classical Economists and Their Philosophy Literature review

Classical Economists and Their Philosophy - Literature review Example All the terms are part of the business strategy which is actually and play a decisive role in constructing marketing tactics (Stigler, 1957). The classical economists had always talked about business tactics. The idea of growth and competitor business strategy is part of their explanation. Here are some who described economics and behavioural finance in all different perspective: Among major terminologies of economics, the classical economists have given much importance to the term â€Å"Competition†. Competition is something that surrounds the basic business environment, in which there are competitors, consumers and the market. Entrepreneurs call it a â€Å"business constraint†, as it changes for the success or failure of business at the same time. The economists have provided several teachings in understanding the term â€Å"competition†. This is for the business strategists and those who seek technical strength for competing in the market. In the late 19th cen tury just after World War II ended, the term â€Å"competition† was felt in different occasions of the business culture. The business strategists discussed it on all intense occasions of the business and tried to fit it in different situations like in a situation of a â€Å"perfect market† or a situation of â€Å"business equilibrium† (balance of supply and demand). ... According to Smith, one is excessive supply tactics where the prices get automatically high for competition, while the other is fewer supply tactics where the prices increase and set a demand. This is how competition floats in the market, and the rivals plan according to the same effective strategy (Stigler, 1957). Adam Smith emphasized on following five conditions which set a competitive advantage of one entrepreneur to another: The competitors should work independently instead of working collectively. A competitor should attain an advantage by minimizing the advantage for the next competitor. The competitor should attain full knowledge of the market to attain a parallel advantage. The competitors are free to work on such knowledge. Resources should be vitally utilized in order to stabilize the presence in the market. The following above statements worked in the agriculture sector where there is no such â€Å"monopoly â€Å"according to modern economists. However, the idea of comp etition is quite clear in a general way as everyone knew how to race in an environment where the competition is simply to bid one another. This is the definition of â€Å"business environment† which modern economists summarize in their literature work (Stigler, 1957). John Elliott Cairnes and â€Å"Industrial Competition† J.E.Cairnes a pioneer of classical economist got labelled in Industrial competition. He described competition as a condition where there is an exchange of capital and labour between the Industrial partners. He focused on the environment of non-competing Industrial groups. In case of capital, his ideology got successfully applied as capital is easy to transfer and sacrifice, but in the labour, it gets hard because the workmen are solely dedicated to their specialized field and cannot compromise their profession in terms of extra remuneration or wage.