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Business Analytics Homework Solution

Business Analytics Homework Solution

Discussion : In what instance would a manager prefer variable costing over absorption costing? As a manager of Pride Company which basis for pricing decision would you use, absorption costing or variable costing? Justify your answer and cite an example (300 words). need two replies 200 words each…….. I Will post once the main discussion is deliveried. Need two replies  Reply1: Variable cost is where all the costs that vary in the project are included. Variable costing is the tool that is used by the manager when the breakeven price is low and the determination of the ideal price is low. The gross profits that have to be achieved have to be higher than the previous profit. The main reasons where managers will prefer variable cost is when the costs of sales and production are the same and the manager will choose variable cost to make profits. It is generally chosen by the managers when the sales have to produce more money (Cma Tutors, 2021). When a company strongly feels which product to offer and which one to discontinue in the market, they will choose variable cost as the only parameter based on which they will sell the products. It will decide which product is making more profits. There is some scenario where the costs that are required to make a product are hidden and they do not appear even after great investigation. In such times the variable cost will be eligible to make the cost control and understand the actual cost that will incur in the production process (Exceldatapro, 2021). Sales of a product always fluctuate and to understand the fluctuations and make quality decisions variable cost is the parameter that has to be used. Based on the generally accepted accounting principles absorption cost gives an accurate track of all the profits that are taking place in the company compared to that of variable costs. The production cost will also strongly align with the absorption cost which makes the calculation process easy. The parameters based on which the company salaries, bills and rentals are based on the absorption cost and they will help in understanding the line of activity that will bring in profits to the company (Narbaev & Marco, 2014). Hence absorption costing is the best to take pricing decisions. References Cma Tutors. (2021). Labour Costing Formula Cost Accounting. Retrieved from www.cmatutors.com: https://www.cmatutors.com/2014/04/labour-costing-formula.html Exceldatapro. (2021). What is Labor Cost Percentage? Definition, Formula & Applicability. Retrieved from www.exceldatapro.com: https://exceldatapro.com/labor-cost-percent/#:~:text=Typically%2C%20these%20percentages%20range%20between,%2C%20they%20maintain%20under%2035%25. Narbaev, T., & Marco, A. D. (2014). An earned schedule-based regression model to improve cost estimate at completion. International Journal of Project Management, II(4), 122-130. Reply2: The process through which a product’s cost is calculated by considering the indirect expenditures is called absorption costing. This process of accounting involves not just the labor and material cost, but also the full expense of product manufacturing or the rendering of service. Since the method is all-encompassing, it is also known as full absorption costing. On the other hand, the concept of accounting that deals with calculations without adding the fixed cost of manufacturing is called variable costing (Hasan, 2015). A manager would prefer absorption costing over variable costing when they need to fulfill the accounting obligations of Generally Accepted Accounting Principles. For example, if a company has obligations to pay off property mortgage at regular intervals, irrespective of what they produce or go completely zero manufacture of a product, they will not see any profit as long the loan repayment continues. However, they can enjoy the profit, after the mortgage is cleared off. To make these calculations accurate, absorption costing is used (Gersil & Kayal, 2016). Pricing decisions are the decisions taken by the companies to set a price that is suitable for their products or services. As a manager of the Pride Company, if a choice needs to be made between variable cost and absorption cost while pricing a product, I will choose variable costing. That is because, while making basic calculations before pricing a product or service, it is important to keep in mind which costs to add to total expenditure and which ones to exclude (Geiszler et al., 2017). If the pricing is done by adding the overhead cost of manufacturing a product or service, the gross profit will be reduced. However, if the amount spent on the fixed cost of manufacturing would not be considered while calculating the profitability of pricing a product in a certain way, the company can enjoy a good range of profitability on the overall cost. References Hasan, M. (2015). Variable Costing and its Applications in Manufacturing Company. International Scholar Journal of Accounting and Finance, 5(1). Gersil, A., & Kayal, C. (2016). A Comparative Analysis of Normal Costing Method with Full Costing and Variable Costing in Internal Reporting. International journal of management, 7(3). Geiszler, M., Baker, K., & Lippitt, J. (2017). Variable Activity‐Based Costing and Decision Making. Journal of Corporate Accounting & Finance, 28(5), 45-52.

In what instance would a manager prefer variable costing over absorption costing? As a manager of Pride Company which basis for pricing decision would you use, absorption costing or variable costing? Justify your answer and cite an example (300 words). need two replies 200 words each........ I Will post once the main discussion is deliveried. Need two replies  Reply1: Variable cost is where all the costs that vary in the project are included. Variable costing is the tool that is used by the manager when the breakeven price is low and the determination of the ideal price is low. The gross profits that have to be achieved have to be higher than the previous profit. The main reasons where managers will prefer variable cost is when the costs of sales and production are the same and the manager will choose variable cost to make profits. It is generally chosen by the managers when the sales have to produce more money (Cma Tutors, 2021). When a company strongly feels which product to offer and which one to discontinue in the market, they will choose variable cost as the only parameter based on which they will sell the products. It will decide which product is making more profits. There is some scenario where the costs that are required to make a product are hidden and they do not appear even after great investigation. In such times the variable cost will be eligible to make the cost control and understand the actual cost that will incur in the production process (Exceldatapro, 2021). Sales of a product always fluctuate and to understand the fluctuations and make quality decisions variable cost is the parameter that has to be used. Based on the generally accepted accounting principles absorption cost gives an accurate track of all the profits that are taking place in the company compared to that of variable costs. The production cost will also strongly align with the absorption cost which makes the calculation process easy. The parameters based on which the company salaries, bills and rentals are based on the absorption cost and they will help in understanding the line of activity that will bring in profits to the company (Narbaev & Marco, 2014). Hence absorption costing is the best to take pricing decisions. References Cma Tutors. (2021). Labour Costing Formula Cost Accounting. Retrieved from www.cmatutors.com: https://www.cmatutors.com/2014/04/labour-costing-formula.html Exceldatapro. (2021). What is Labor Cost Percentage? Definition, Formula & Applicability. Retrieved from www.exceldatapro.com: https://exceldatapro.com/labor-cost-percent/#:~:text=Typically%2C%20these%20percentages%20range%20between,%2C%20they%20maintain%20under%2035%25. Narbaev, T., & Marco, A. D. (2014). An earned schedule-based regression model to improve cost estimate at completion. International Journal of Project Management, II(4), 122-130. Reply2: The process through which a product’s cost is calculated by considering the indirect expenditures is called absorption costing. This process of accounting involves not just the labor and material cost, but also the full expense of product manufacturing or the rendering of service. Since the method is all-encompassing, it is also known as full absorption costing. On the other hand, the concept of accounting that deals with calculations without adding the fixed cost of manufacturing is called variable costing (Hasan, 2015). A manager would prefer absorption costing over variable costing when they need to fulfill the accounting obligations of Generally Accepted Accounting Principles. For example, if a company has obligations to pay off property mortgage at regular intervals, irrespective of what they produce or go completely zero manufacture of a product, they will not see any profit as long the loan repayment continues. However, they can enjoy the profit, after the mortgage is cleared off. To make these calculations accurate, absorption costing is used (Gersil & Kayal, 2016). Pricing decisions are the decisions taken by the companies to set a price that is suitable for their products or services. As a manager of the Pride Company, if a choice needs to be made between variable cost and absorption cost while pricing a product, I will choose variable costing. That is because, while making basic calculations before pricing a product or service, it is important to keep in mind which costs to add to total expenditure and which ones to exclude (Geiszler et al., 2017). If the pricing is done by adding the overhead cost of manufacturing a product or service, the gross profit will be reduced. However, if the amount spent on the fixed cost of manufacturing would not be considered while calculating the profitability of pricing a product in a certain way, the company can enjoy a good range of profitability on the overall cost. References Hasan, M. (2015). Variable Costing and its Applications in Manufacturing Company. International Scholar Journal of Accounting and Finance, 5(1). Gersil, A., & Kayal, C. (2016). A Comparative Analysis of Normal Costing Method with Full Costing and Variable Costing in Internal Reporting. International journal of management, 7(3). Geiszler, M., Baker, K., & Lippitt, J. (2017). Variable Activity‐Based Costing and Decision Making. Journal of Corporate Accounting & Finance, 28(5), 45-52.

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