Costing and Information Systems of the Worplestrop Essay - 1

Costing and Information Systems of the Worplestrop - Essay Example Product costs are identified with goods produced or purchased for resale in an organization. In marginal costing, the only variable cost is charged as a cost of sale and we get the contribution is which normally is given by sales revenue less the variable cost of product sold. The closing stock of goods which are work in progress or finished goods in the store is valued at variable production cost. Fixed cost are normally treated as period cost and are charged in full to the profit and loss accounts of the accounting period in which they are incurred. The principle of marginal costing of a product is that in a particular period, fixed cost will always be the same, for any volume of sales and production provided that the level of activity is within the relevant range or the budgeted range, therefore, by selling an extra item of product or service the following will happen. Similar if the volume of sale, if the volume of sales falls by one item, profit will fall by the same amount of contribution earned from the sale of items. Profit measurement should, therefore, base on analysis of total contribution. Since fixed cost relates to a period of time, and do not change with either increase or decrease in the sales volume, it is misleading to charge units of sales with a share of the fixed cost from the total contribution of the period to get the profit figure. When one unit of a commodity is produced then an extra cost must be incurred in its production as a variable cost but the fixed cost will always remain constant. Then it is true to say that it is in order to value the closing stock as a variable cost. It is sometimes called full costing, in this costing, all the manufacturing cost incurred in any particular period is accounted for, and also until the product is sold fixed overheads will remain a product cost.