I need one response to each student discussion board post. Please keep separate and in order. Each post should be at least 150 words each with references Turnitin is being used to check for...

Jobin Abraham

The main difference between variable cost and absorption costing is how fixed overhead expenses are treated (Schneider, XXXXXXXXXXWith variable costing, the fixed overhead costs are treated as a period cost and deducted from revenue as a lump-sum expense (Schneider, XXXXXXXXXXAbsorption costing includes the fixed overhead cost on a per unit basis, with the fixed overhead expense being hidden until the unit is sold (Schneider, 2017).

The difference in how the fixed overhead costs are treated in absorption costing is where I have a problem. This method allows the fixed overhead costs to be hidden on unsold inventory, which may be an enticement to unethical managers to manipulate the inventory numbers to show more favorable costing reports (Schneider, XXXXXXXXXXAbsorption costing can also lead to incorrect short-term decisions being made as to the level of ending inventory for the company to hold (Schneider, XXXXXXXXXXWith the fixed overhead costs hidden on unsold inventory, absorption costing does not allow for a true accounting of how much was spent during a period to manufacture a product. This can lead to misleading profitability numbers. I believe that once a product is made, all manufacturing costs need to be accounted for during the reporting period, whether the product is sold or not.

References

Schneider, A XXXXXXXXXXManagerial accounting: Decision making for the service and manufacturing sectors. (2nd Edition) [Electronic version]. Retrieved from https://content.ashford.edu/books/Schneider XXXXXXXXXX

Joseph Ausanio

In seeing the arguments for the variable costing and absorption costing, there are some methods that can be seen that may have better outcomes than other. I am more for the variable costing method, as it helps keep the difference and track what numbers are coming from each department. It will also help compartmentalize and itemize lines to as much detail is necessary. Being able to look at itemized line items can be more beneficial when making high-level management decisions. Absorption costing is more of a ‘broader’ method of costing which can be utilized efficiently when looking for a quicker output. “A plant manager might examine materials, labor, and overhead cost variances in the grinding department to evaluate the performance of the grinding department manager” (Schneider, 2017).

Absorption costing generates a higher net income when production is high. This can be good for some methods and industries, however if you had a higher net income it also raises your tax liabilities. Variable costing will increase you to report a higher net profit, however this can help allocate product expense. I am more in favor of variable costing and absorption costing, as just about every scenario would be dependent upon the situation. Depending on deprecation expenses, ownership of land/building and other assets, either method can be utilized efficiently. The type of service or product you provide can dictate which one of these can be best suited for your own situation.

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