Accounting

Activity-based costing (ABC) is a useful costing method that accounts for overheads and indirect costs. It allocates costs through identifying cost activities, cost drivers, and cost pools. The ABC method removes several inefficiencies in the traditional costing approach. However, the approach requires effective implementation and change management to achieve efficiency. Let us discuss what is

Variable or marginal costing and full or absorption costing methods are two widely used inventory costing methods. Both come with different advantages and some limitations to implement. The marginal costing method helps a company in key decisions such as operational efficiency and control measures. The absorption method allocates full production costs and offers accurate final

Absorption costing is the full costing method that considers variable and fixed overheads. It comes with several advantages as compared to the marginal costing method. Absorption costing is a simple and less costly method as compared to the modern activity-based costing approach. However, it comes with limitations against other costing methods a well. Let us

Activity-based costing is a comprehensive cost allocation method. It helps the management identify cost activities and cost drivers. ABC method serves several purposes including product costing, pricing, profitability, and customer profitability analysis. On the other hand, absorption costing is the conventional costing approach. It adds fixed overhead costs to the variable costs of production. Let

Joints costs incur when more than one product is produced using the same resources. Companies can extract several products out of one main ingredient. Apportioning joint costs can help companies in calculating the correct selling price. Eventually, the decision can impact the company’s long-term profits. A company can use several methods to apportion joint costs.