# Cost Method

## Cost Method

• Submitted By: shaymeer
• Date Submitted: 10/14/2015 7:42 PM
• Words: 356
• Page: 2

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Cost Methods Paper
Tasha Clemons
ACC/561
July 23, 2015
Jennifer Melvin
Cost Methods Paper
The absorption method in this case would be the best choice due to the way the method incorporates only the overhead. The overhead is an allocation to the 80,500 units sold. The variable method usually counts fixed overhead as a period expense. This means that the fixed overhead during this period is a calculation based on the 95,100 units made. If the absorption method is choose, this is the calculation method used for solving the problem.
What are the benefits of the two methods?
Absorption cost is the product consisting of all variable including fixed manufacturing costs (Accounting Tool, n.d). When the utilizing variable costing system, the fixed cost, including manufacturing and non-manufacturing, it is a period cost and therefore there is no need to include in the product cost. The absorption method allows managers to communicate accurate data involving product costs and provides a net income closer to the cash flow of the business.
Which method would lead to the best decision when a competitor is submitting a lower bid for your product?
The absorption method is the best method to use when a competitor is submitting a lower bid for the product (Formanagement, n.d). Under absorption costing, the cost of the good is not visible until the good is sold. If a business do not sell their entire manufactured product during the accounting period, applying the absorption method is the best method to utilize.
In conclusion, the absorption method in this case would be the best choice due to the way the method incorporates only the overhead. When the utilizing variable costing system, the fixed cost, including manufacturing and non-manufacturing, it is a period cost and therefore there is no need to include in the product cost. . Under absorption costing, the cost of the good is not visible until the good is sold.
Reference
Formanagement, A. (n.d)....