ASSIGNMENT

Research and select the journal articles you will use as sources for

your Case Study. Prepare a two page paper in APA format, that summarizes

the articles and prepare an annotated bibliography.

INSTRUCTIONS BELOW

week four will cover chapters nine (Introduction to Managerial Accounting and Cost Savings), ten (Cost Estimation and Cost-Volume-Profit Relationships), and eleven (Product Costing: Attaching Costs to Patient Services) in the textbook. This week you will describe how management accounting is a value-added discipline in determining product and business segment costs; interpret how cost behavior, operating leverage, and profitability work; define how costs are accumulated and assigned to products and services, and determine relevant factors affecting business decision making.

Research and select the journal articles you will use as sources for your Case Study. Select a minimum of three. Summarize the articles and prepare an annotated bibliography. These sources will be used in support of the final assignment (Case Study). Websites are not Journal articles. When listing your journal articles, make sure you follow the APA format when listing references on your reference page. Make sure your final paper follows your outline as I will compare the two. Please make sure you read the entire directions for the two discussion posts (Cost Flows Among Service, Merchandising, and Manufacturing Enterprises and Product costing) this week.

Product Costing can take on any number of definitions from variable and full absorption costing to standard, actual, normal and capacity costing approaches. This textbook is focusing largely on variable versus full absorption costing.

Full absorption costing is the approach to product costing in manufacturing that attaches all direct and indirect costs related to production to the work in process and finished goods. The three primary classifications are direct materials, direct labor and manufacturing overhead. The full absorption costing method is the only acceptable method under GAAP. Full absorption is fairly straight forward, any cost that is a direct input into the product becomes a part of the cost basis, and any cost that directly supports the production process whether clearly traceable to the product or not also becomes part of its cost basis. The manufacturing overhead costs often referred to as indirect costs, are varied in nature and present some difficulties in how those costs should be allocated to the product. Accounting processes over the last few decades have become more sophisticated in how these indirect and sometimes obscurely connected costs are associated with the finished good. Activity Based Costing (ABC) is used to create various pools of similar and associated costs rather than one pool of all costs. These ABC cost pools are allocated to the finished product using specific allocation bases that simulates direct costs providing a better association of costs with the products that have used those cost pool services. An example would be a mechanic’s cost pool for production equipment repair and maintenance.

The variable or direct method of costing is an approach that associates only variable costs with the production of product (variable costs are those that change with each change in activity level). The theorists that support this approach take the position that fixed costs would remain whether there is production or not so those costs have nothing to do with the value-added process of production. There is no presentation of cost of goods sold in a direct/variable costing income statement, variable costs are subtracted from net sales to arrive at profit contribution and fixed costs are then subtracted to determine operating income.

Both approaches have their strengths and weaknesses. Since full absorption is sanctioned by GAAP as the only acceptable costing approach for product that is what will be seen on the financial statements of publicly traded companies. The direct/variable costing approach provides management with added information as an internal reporting resource.

Epstein, L. & Schneider, A. (2014). Accounting for health care professionals. San Diego, CA: Bridgepoint Education, Inc.

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