Variable costing is useful to managers for all but the following [Solved]

In business, its important to be able to accurately predict how much it will cost to produce a product or service. This is often done by estimating the variable costs associated with producing the good or service. However, there are some situations in which managers might not need to know these details specifically, when theyre only planning for the short-term.

What is Variable Costing

Variable costing is a method of costing that assigns each cost of producing a good or service, such as raw materials, labor, and manufacturing overhead costs, to a specific unit of production. By doing so, managers can more accurately estimate the total cost of producing a good or service.

3. When making decisions about pricing strategy. Fixed costs will dominate the decision when comparing different prices for the same product or service.

1. When allocating resources within a single department. This is because fixed costs (those that stay the same regardless of production levels) will dominate the allocation decision.

Why Use Variable Costing

Variable costing is useful to managers for all but the following:

2. When allocating resources across different departments or divisions in a company. This is because fixed costs will dominate the allocation decision when comparing different divisions or departments.

When Should You Use Variable Costing

Variable costing is a useful tool for managers when making decisions about how to allocate resources among competing demands. However, the following situations are not typically good candidates for use of variable costing:

1. When allocating resources within a single department. This is because fixed costs (those that stay the same regardless of production levels) will dominate the allocation decision.

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2. When allocating resources across different departments or divisions in a company. This is because fixed costs will dominate the allocation decision when comparing different divisions or departments.

3. When making decisions about pricing strategy. Fixed costs will dominate the decision when comparing different prices for the same product or service.

Limitations of Variable Costing

Variable costing can be a valuable tool for managers, but it has limitations. Variable costing is useful for analyzing how inputs affect costs, but it is not useful for making decisions about where to allocate resources. Additionally, variable costing cannot capture the effect of changes in demand on costs.

Conclusion

Variable costing is a useful managerial tool for all but the following circumstances:
-If the costs of producing different batches are not constant.
-If there is no backlog of work.
-If there is no variation in output.

FAQ

Q: What is variable costing
A: Variable costing is a method of pricing where the cost of an item or service is based on how much it costs to produce that item or service.

This post is last updated on hrtanswers.com at Date : 1st of September – 2022