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Discuss the use of variable costing for decision making in a manufacturing company and a service...

Question:

Discuss the use of variable costing for decision making in a manufacturing company and a service company.

Variable Costing:

Variable Costing is a costing method wherein the cost are behaving dependent to the their own driver. One example is Direct Labor Cost is increasing due to the increase in Direct Labor Hours.

Answer and Explanation:

The answer is

Variable costing is useful in decision making because it is used in setting the target of product to be sold or service to be rendered. Through Variable Costing, we can compute the break-even point of a company that is used in setting a target. The break-even point is used to maximize the profit in considering the fixed cost constraints.

Variable Costing will also show that there are cost that can be controlled based on different drivers. Drivers are the source of cost, like for example, Direct labor cost driver is direct labor hours. This can be used by the management to provide more efficient and effective way of controlling this drivers.


Learn more about this topic:

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Variable Costing: Method, Formula & Advantages

from Financial Accounting: Help and Review

Chapter 13 / Lesson 5
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