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Article: Absorption costing for decision-making.
- Article from:
- Management Accounting (British)
- Article date:
- October 1, 1997
- Author:
CopyrightCOPYRIGHT 1997 Chartered Institute of Management Accountants (CIMA). This material is published under license from the publisher through the Gale Group, Farmington Hills, Michigan. All inquiries regarding rights should be directed to the Gale Group. (Hide copyright information)
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Mike Lucas, of the University of Buckingham, describing how absorbing certain fixed overhead costs into unit product costs can complement Kaplan and Cooper's approach to ABC, to improve the quality of palnning and decision making
Received wisdom has it chat absorption costs should not be used for decision-making, i.e. non-volume related costs should not be allocated to the product unit level. If such costs are allocated down to the product unit level, the resultant unit cost will be a function of production volume. Take, for example, the cost of performing a machine set-up. This will be independent of the number of units to be produced. Consequently, if the size ...