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Responses to Other Students: Respond to at least 2 of your fellow classmates with at least a 100–200-word reply about their Primary Task Response regarding items you found to be compelling and enlightening. To help you with your discussion, please consider the following questions:

· What did you learn from your classmate's posting?

· What additional questions do you have after reading the posting?

· What clarification do you need regarding the posting?

· What differences or similarities do you see between your posting and other classmates' postings?

STUDENT 1:

Costing systems are vital for business to determine the true cost of their services or products. Three common costing systems are absorption costing, variable costing, and throughput costing. Each costing system has advantages and disadvantages and is used differently depending on the situation and on the business’s goals and objectives. 

            “Absorption costing is a traditional method of costing that assigns all production costs to units produced, including direct materials, direct labor, and both variable and fixed overheads.” (Bragg, 2023). Absorption costing provides a totally complete picture of the cost of each unit, including all indirect costs associated with production. This method is commonly used for financial reporting purposes because it complies with Generally Accepted Accounting Principles (GAAP). An example of absorption costing is a furniture manufacturer uses absorption costing to determine the cost of producing a chair. The direct labor, direct materials, and overhead costs incurred in producing a chair are all included in the total cost of the chair. This includes the cost of the factory building, depreciation of machinery, and other indirect costs associated with producing the chair.

            “Variable costing is a method of costing that assigns only variable costs to the units produced. Variable costs are those that change based on the level of production, such as direct materials and direct labor costs.” (Thakur, 2023). Fixed overhead costs, such as rent and depreciation, are not included in the cost of production. This method is useful for decision-making purposes because it shows leaders in the organization how changes in production volume will affect their costs. An example of variable costing is a software company uses variable costing to determine the cost of producing a software program. The direct costs of producing the program, such as programmer salaries and software development costs, are included in the cost of the program. However, the fixed overhead costs, such as rent and utilities, are not included in the cost of the program.

            “Throughput costing is a method of costing that focuses on the throughput of a production process.” (Maurya, 2023). Throughput is the amount of material or product that passes through a system or process in a given period. In this method, only direct materials costs are included in the cost of production, leaving only one thing to affect costs. An example of throughput costing is a bakery uses throughput costing to determine the cost of producing a loaf of bread. The only costs included in the cost of production are the direct costs of producing the bread, such as the cost of flour, yeast, and other ingredients.

            Each costing method has its advantages and disadvantages and should be used differently depending on the situation and on the business’s goals and objectives. Absorption costing is commonly used for financial reporting purposes because it complies with GAAP. Variable costing is useful for decision-making purposes because it helps leaders of an organization understand how production volume will affect their costs. Throughput costing is useful for identifying bottlenecks in the production process and focusing on ways to improve the throughput of the process.

            In conclusion, costing systems are essential for businesses to determine the true cost of their product or services. If it is through absorption costing assigning all production costs to the units being produced, variable costing assigning only variable costs to the units produced, or throughput costing focusing on the throughput of a production process, businesses can identify which costing process or system works best for their business. Each method has its advantages and disadvantages and should be used in different situations depending on the business’s goals and objectives.

References:

Bragg, S. (2023, March 13). Absorption costing definition. AccountingTools. Retrieved April 10, 2023, from https://www.accountingtools.com/articles/absorption-costing

Maurya, R. (2023, March 29). What is throughput costing? Fundamentals of Accounting. Retrieved April 10, 2023, from https://fundamentalsofaccounting.org/what-is-throughput-costing/

Thakur, M. (2023, March 18). Variable costing: Features & comparisons: Advantages & disadvantages. EDUCBA. Retrieved April 10, 2023, from https://www.educba.com/variable-costing/

STUDENT 2:

 What is the definition of cost absorption? It can also be referred to as full costing is a way for managerial accountants to take all the costs that deal with the production of a certain product. Direct and indirect costs including direct materials, direct labor, rent, and insurance are accounted for when using this method. It also distributes fixed overhead costs to a product that is or is not sold. With this method it means there is more cost that is included in ending inventory, which will be carried over as an asset on a balance sheet.

            Variable costs are expenses can rise and fall with different business activities. The busier the company is the higher it goes and vice versa. A lot of variable costs consisting of inventory or freight can go up with the number of sales for a business. That is not the case for all variable costs, such things like marketing, trade shows, and sales travel could be used to drive up sales, but it does not always work that way. Some examples include inventory of materials used for products or services offered by the company. Another would be packaging and shipping of the goods. Any contractors that could be hired if the company gets really busy. Also, any commissions and referral bonuses that get paid for sales.

            Throughput costing or super-variable costing is a newer concept. This method is a system that is based off most production costs that will not vary from the level that the one unit is produced at. Also, with this type of costing inventory costs are obtained from only direct materials only when other costs are considered as expenses acquired in the period of manufacturing. It can also help measure costs and evaluate the productivity and success of performance within an organization.

            There are many different situations in which all three of these methods could be used. Starting with cost absorption, this could be used when a company is renting apartments to the local population, and they need to be able to manage their rent along with insurance and any building materials they may need to keep the building up to code. Variable cost is used to determine a breakeven point. Companies can use it to see how many materials or items it needs to see and how many units the company would have to sell to make a specific amount of money. Lastly, throughput costing is mainly used for companies where their labor and admin expenses remain the same. Car manufacturers can use this method due to their high assembly line activity and constant operation. An example of that would be any highly automated assembly lines or something that would require continuous operation.

 

 

 

 

Tuovila, A. (2022, December 20). Absorption costing explained with Pro and Cons and examples. https://www.investopedia.com/terms/a/absorptioncosting.asp#:~:text=Absorption%20costing%20allocates%20fixed%20overhead,asset%20on%20the%20balance%20sheet.

Xero (n.d.). What is Variable Cost? https://www.xero.com/us/glossary/variable-cost/#:~:text=Variable%20costs%20are%20expenses%20that,sales%20a%20business%20is%20making.

Maurya, R. (2022, October 14). What is Thoughtput Costing? Fundamentalsofaccounting.org. https://fundamentalsofaccounting.org/what-is-throughput-costing/?utm_content=anc-true