Costing Methods Paper- Learning Deliverable
Team A found that the best method to utilize in the case of cost methods is the absorption method. Although in both the absorption and variable costing method there are net income losses, the loss of revenue for the absorption costing method is far less than that of the variable costing method. By utilizing this method over the variable costing method, we find that Polk Company saves money and can recover from loss by providing a more accurate visual of the profit goals of the company while giving the company a higher net income. Benefits of the absorption method include still have an option to sell the items during another period if the products are not sold within the same accounting period. If a company uses absorption costing that is the only method they will have to use. Flexible budgeting can be implemented and molded around the loss to cover the company from any potential recurrences of that amount of loss in the next year. In contrast, benefits of variable costing methods include having a lower manufacturing cost per unit while ensuring that bills and expenses are taken care over a period of time. This results in a surplus shown if products are sold within that period (Kimmel, 2011). In terms of a competitor submitting lower bids for a product, the variable costing method net income is not affected with changes in production, therefore managers don't tend to make the mistake of overproducing. The reality is that absorption cost is really used by companies that plan on selling the product during a different period, and results in a clearer vision on profit in the long run versus seeing small profit in the long run (Kimmel, 2011).
In conclusion, the best cost method is the absorption method. It gives ample time to figure out budgeting tactics to remedy losses. Loans and appropriate flexible budgeting can be