Advanced Management Accounting Essay Example | Topics and Well Written Essays - 2000 words - 1

Advanced Management Accounting - Essay Example Therefore, a company should consider the various forms of costing techniques for the purposes of controlling costs and making some important managerial decisions. The generally-used forms of costing techniques include absorption costing, marginal costing, activity based costing, throughput accounting, target costing and environmental accounting. Absorption costing is a technique of product costing that usually includes an appropriate share of a company’s total overheads in the total cost of a product, which are usually taken to entail an amount of overheads that reflects the effort and time that has been used in producing the product (Garrison, Noreen & Brewer, 2003). In arriving at the costs of the product using absorption costing an organization has to go through a three step-process involving allocation, apportionment and overhead absorption. The first step is allocation that entails a process where cost unit or cost center are identified and then those costs that are associated with each cost center are charged accordingly. Overheads clearly identifiable with costs centers are allocated to these cost centers but costs which cannot which cannot be identifiable to cost centers are allocated to general overhead cost centers. For example the cost of a warehouse security guard will be charged to the warehouse cost center but the heating and lighting costs would be charged to general overhead cost center. Under overhead apportionment an organization will start by sharing out of overheads within the general overhead cost centers between other cost centers using a fair basis of apportionment. After this stage of overhead apportionment, those costs that have been allocated to service cost centers are then apportioned to production cost centers including those that are directly allocated and the apportioned costs. Finally, absorption costing ends with absorbing those overheads that have been allocated and apportioned to production centers into the product cost