Question

Discuss how financial data prepared on the basis of variable costing can assist management in the development of short-run pricing policies. With references if possible.

Answer 1

Variable costing can access the management and development of short run price policy because of following reason

1. Increase in profit :- the 6 cost of the seals and production remain the same for the given period of time the manager who considers variable costing to sell the additional unit during the specific time frame at to the company button line in the seas and the profit because the unit do not cross the company more money to produce. variable costing does not take into account fixed cost therefore profits are likely to increase by the amount on through the scenes of additional item.

2. Product offering:- manager uses variable costing to determine the which product to offer and which product to discontinue rather than discontinuing a product based on negligible profit a manager can use variable costing to determine the overall cost of the keeping a unit in product. For example if a company offer 4 product and decide discontinue two and remaining to product have have to absorb overhead. Variable costing illustrate the impact that does continue a product have on all course related to production. When considering variable costing manager logically see that keeping a particular unit introductions help as of fixed cost and maintain the overall profit

3. Cost control :- variable costing system simplify the estimation of product and a customer probability rather than analysing data detail by post that God exist together a unit is produced or not variable costing allow managers to analyse the data based on the actual cost of the production understanding the actual cost of 5 unit allow the Managing to reduce the variances between actual and budgeted amount which orphaned mean the controlled cost and the highest revenue for the organisation

4:- accuracy :- most organisation do not produce of the seas the same number of unit each period because says fluctuate manager could make a poor decisions based on obscure data always the uses the most appropriate costing system. variable costing has the manager with irregular shapes patterns more accuracy determine the cost of the product during the given period if the series patterns are compatible PDF for example C is increased during winter month and decrease during the summer month manager can use variable costing data to estimate the future cost of production.