As You Read In Chapter 8, There Are Arguments For And Agains

As You Read In Chapter 8 There Are Arguments For And Against Variab

As you read in Chapter 8, there are arguments (for and against) variable costing and absorption costing. ANSWER THE FOLLOWING TWO QUESTIONS BELOW THOROUGHLY... Select one of these costing methods and explore the various arguments. Determine whether you are “for” or “against” this selected method. You must use two scholarly sources that are cited in APA form (no Wikipedia, thesaurus, dictionary, or webster). You must provide a reference page and cite your work in your paper also. Must be 300 words long in length... This paper is due today 6/25/15 by 3:00 p.m. 6 hours from now sooner the better...no later...no plagiarism...

Paper For Above instruction

The debate between variable costing and absorption costing is fundamental in managerial accounting, with each method offering distinct advantages and disadvantages. For this analysis, I will focus on absorption costing, evaluating its arguments for and against, and express my stance based on scholarly insights.

Absorption costing, also known as full costing, allocates all manufacturing costs—both fixed and variable—to products. This method aligns with Generally Accepted Accounting Principles (GAAP) and provides a comprehensive view of total product cost, which is beneficial for external financial reporting. Scholars like Young and Griffiths (2012) argue that absorption costing offers a more accurate picture of profitability by including all manufacturing expenses, thereby preventing the underestimation of costs associated with production. This comprehensive approach also ensures compliance with legal standards for financial disclosures.

However, critics highlight several drawbacks. A key contention is that absorption costing can distort managerial decision-making. When fixed manufacturing overheads are allocated to inventory, it can artificially inflate product costs and, consequently, distort profit margins. This may lead managers to make suboptimal decisions, such as overproducing to allocate more fixed costs to inventory and defer expenses, as suggested by Drury (2013). Moreover, absorption costing may encourage inventory hoarding, which can distort true operational performance and financial health.

In my view, the primary advantage of absorption costing—the alignment with external reporting standards—outweighs its managerial disadvantages, especially when transparency and compliance are critical. Yet, for managerial decision-making purposes, especially in internal settings, variable costing can provide clearer insights by segregating fixed and variable costs. Scholarly consensus indicates that firms should use absorptions for external reports but rely on variable costing internally to optimize decision-making (Garrison et al., 2014).

In conclusion, while absorption costing supports compliance and provides a complete view of product costs, its drawbacks in managerial decision-making are significant. Therefore, I am "for" absorption costing for external reporting but advocate for the use of variable costing internally to facilitate better management decisions.

References

• Drury, C. (2013). Management and Cost Accounting (8th ed.). Cengage Learning.
• Garrison, R. H., Noreen, E. W., & Brewer, P. C. (2014). Managerial Accounting (15th ed.). McGraw-Hill Education.
• Young, S. M., & Griffiths, F. (2012). Financial & Managerial Accounting. Pearson Education.