Disscussion
Question Description
Lakisha DeLaGarza
Answer in 150 words or more
Hi Instructor,
One of the important accounting approaches that is used within the management team is the incremental analysis approach. It is “the process of identifying the financial data that change under alternative courses of action” (Kimmel, Weygandt, & Kieso, 2016, p. 976). I am faced with many different factors with making decisions to keep the company successful. There is no traditional method in my daily duties. Working in a medical retail store manager it is all about placement of things, price, stock, and choices of merchandise to carry. If we sold a lot of fresh food and snacks this week should I purchase more for sale or keep the order quantity the same because the future is unsure. If there is more fresh products purchased than the week before we could lose money if sales stay the same. Both cost and revenue is affected. It is all based on making a good judgement. The usual steps for making decisions are “identifying the problems and assigning responsibility, determine and evaluate possible courses of action, make a decision, and review results of a decision” (Kimmel, Weygandt, & Kieso, 2016, p. 975). This accounting approach connects with other steps within accounting like evaluating overhead costs and activity-based costing. For example, if a manufacturer decides to change the amount of product it creates, the cost of overhead may alters when the decision to replace or repair equipment, to chose cheaper raw materials to produce, cut hours, or cut back on expenses. Theses are all forms of how incremental analysis is used amongst managers or those in charge of making these decisions. There may be different courses of action but the manager has to chose the one with the most priority.
Kimmel, P.D., Weygandt, J.J., & Kieso, D.E. (2016). Accounting Tools for Business Decision Making (6th ed.). Retrieved from The University of Phoenix eBook Collection database
Erica Williams
Answer in 150 words or more
Variable costing is a concept used in managerial and cost accounting in which the fixed manufacturing overhead is excluded from the product-cost of production. The method is in contrast with absorption costing, in which the fixed manufacturing overhead is allocated to products produced. In accounting frameworks such as GAAP and IFRS, variable costing is not allowed in financial reporting. When it comes to the accounting standards for the external financial reporting, the cost of inventory must include all costs that was used to prepare the inventory for its intended use.
- A variable cost is a corporate expense that changes in proportion with production output.
- Variable costs are dependent on production output.
- A variable cost can increase or decrease depending on several factors, as opposed to a fixed cost which is one-time
When it comes to Variable costing, variable costing is apart of many job fields and operated on each and every monthly statement for them. Researching variable costing, it is multiple things on your monthly income statement:
Labor
Materials
Insurance
Equipment
Building
Utilities (fixed)
Utilities (variable)
An example that i have with Variable costing would be when I used to work at Food Lion. My manager would have the bakery clerk make these cakes that was called “Strawberry Shortcake”. We would get the strawberries and strawberry glaze from the produce, the whip cream would be ordered through the perishable truck, and then we would have the cake sheets from the bakery/perishable truck as well. The cost to make this cake was around $2.50, Food lion would sell this cake around $8.99, $7.99 on a special holiday like Valentines day, Mothers day, Fourth of July and so forth. These cakes are so delicious that even if the price was $10.99, they would still sell. So after the cost of the products/merchandise used, the cost of the labor, I remember my manager would tell me that we would make $3.60 off of each cake that was sold. Of course, the more cakes that you sold, the more the variable cost will change, the more profit that you will make.
https://corporatefinanceinstitute.com/resources/knowledge/accounting/variable-costing/
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