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Understanding costing is hard. Costing, which is an integral part of the accounting portion, requires a thorough understanding of its components to run the accounting department successfully and ensure that the finances of an organization remain intact. However, it poses a certain challenge to the students.
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What are the three approaches?
Before you think about choosing any one approach, it is first necessary to learn about the approaches we are talking about. The approaches that are referred to here are the three methods used to adjust the over or under allocated overhead in a firm. There are three ways to do so which you can learn about with choice among approaches homework help.
They are:
- Adjusted allocation rate approach where the allocations are recalculated with the actual allocation rate.
- Proration approach where the difference is assigned to cost of goods sold, work in process and goods sold based on their sizes.
- Write off approach where difference is written off as cost of goods sold.
Choices among approaches
The choice among approaches arises when working in an organization. It is responsibility of the manager to realize the best choice among all these three approaches and implement that to their best of ability.
The factors which should influence their choice are:
- Cause of under or over allocation.
- How to use the information obtained.
Many feel that such under allocation or over allocation depicts the inefficiency and should simply be written off to cost of goods sold. This allows the implementations of the combination of two approaches: write off and proration approach.
Prorating each job is useful if the aim is to develop an accurate account of job costs in order to analyze the profitability.
Mostly, however, write off is used a set is the simplest of all. When the allocation of funds is small, the write off approach gives a more accurate but more complex result. But companies nowadays are rather aware of their inventory which poses a few problems. This you can learn with choice among approaches assignment help.
Thus, these problems pose a serious threat, as managers tend to write it off instead of prorating which results in falsifications of the financial statements.
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