Article Analysis (Essay Sample)

Article Analysis: Variable Costing Student’s Name Institutional Affiliation Article Analysis: Variable Costing Link to the Article https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2675830 Summary of the Article The article highlights the application of the variable costing system in the manufacturing industry. Overheads are incurred during the production process and they are mainly influenced by the volume of output. Variable costing is a technique used to determine the expenses of commodity manufacture, estimate inventory, to make decisions by management CITATION Kha06 \l 1033 (Khan & Jain, 2007). Industries are in a phase of adopting automated operations. Competition among companies impacts the changes in the working environment. Consequently, firms produce a range of goods with varying demand to remain sustainable. The significance of variable costing includes its enhancement of planning, controlling, and decision-making. The system helps the production department personnel to approximate manufacturing levels, sales, and the costs to be expected CITATION MHa15 \l 1033 (Hasan, 2015). The management team utilizes variable costing to price goods appropriately and increase sales. For instance, when competition is high, a company’s executives may adopt cheaper approaches to assembly of goods and lower the product price. In addition to pricing, variable costing helps in the control of expenses. The reason for this is that the system is used by an organization’s accountants to separate variable costs from fixed costs. Therefore, it is possible to generate costing reports from various departments, budget, and use of standards in expenditure management. A company’s reports should be prepared from all of its subdivisions, based on variable costs, fixed costs, and standard costs. It is also necessary to separate such costs and report them independently CITATION Dru13 \l 1033 (Drury, 2013). The decisions made by the management team are based on each department’s information. The accountants do not prepare statements using a periodic approach because standards change with time. The information generated from variable costing is valuable in the evaluation of the performance of every department. Reflection The article provides realistic insights regarding the use of the variable costing system in a large manufacturing organization. Furthermore, the author indicates that variable costing is better than absorption costing since the latter is characterized by complications. Records are kept on the basis of variable costing by firms because it makes the manageme...