The phenomena of applied costing and variable one have been used in entrepreneurship as two strategies for managing costs for a while. The absorption costing approach allows an organization to consider all expenses linked to the production process, whereas the variable one takes only those that are deemed as variable into account. In their article, Novák, Papadaki, Hrabec, and Popesko (2016) compare and contrast different managerial outcomes of utilizing the costing techniques associated with absorption and variable costing. Specifically, the authors examine the throughput accounting approach as one of the strategies for implementing absorption costing in the corporate setting (Novák et al., 2016).
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According to the authors, the variable costing method and the throughout accounting framework share the effects that they produce on the volume of output. However, there is also a noticeable difference between the impacts that the two frameworks have, which concerns the scope of the proposed techniques. Unlike absorption costing, the throughput framework limits the analysis to the assessment of total variable costs, which affects the company’s ability to allocate direct costs and calculate potential expenses by forecasting possible risks that a company may face when implementing a project or performing any transactions in its designated economic context (Novák et al., 2016).
The research concludes that most companies prefer to allocate a comparatively small portion of their direct costs due to the options that it provides for decision-making. Moreover, the authors explain that the use of casual cost allocation also opens new horizons for a company in accounting and the management of its financial resources, yet the use of the suggested tool implies dealing with a large number of challenges.
Overall, the authors concede that the integration of the variable accounting method seems to be more legitimate for organizations operating in modern markets since the variable accounting method helps to define potential expenses more precisely and increases the levels of preparedness for risks in an organization. The research shows that the incorporation of both strategies for analyzing the key variables in managing finances is necessary to keep the risk rates at a comparatively low level and create additional opportunities for a firm to gain a competitive advantage.
The need to manage risks associated with costing and expenses taken in the target market is one of the issues that numerous organizations find especially difficult to address. Therefore, the article with its profound analysis of the opportunities that variable costing and absorption costing provides offers relief to people that seek opportunities for reducing costs in the environment of a rather competitive economy while running an SME. However, the outcomes of the analysis performed by Novák et al. (2016) do not seem to contain any groundbreaking ideas concerning the application of either the absorption costing or variation costing to the environment of an SME.
The fact that the authors refused to single out the approach that proves to be most profitable in the setting of an SME shows that the authors have taken into consideration every factor available and recognized the importance of applying a situational approach toward managing risks in the organizational setting (Ponisciakova, Gogolova, & Ivankova, 2015). However, while the described point of view is sensible and the authors offer a strong conclusion, a more profound discussion of the contexts in which each method can be applied seems to be overdue. By integrating a situational perspective into the management of financial concerns in a company, one will be able to reduce variable costs to the minimum.
Novák, P., Papadaki, Š., Hrabec, D., & Popesko, B. (2016). Comparison of managerial implications for utilization of variable costing and throughput accounting methods. Journal of Applied Engineering Science, 14(3), 351-360. Web.
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Ponisciakova, O., Gogolova, M., & Ivankova, K. (2015). The use of accounting information system for the management of business costs. Procedia Economics and Finance, 26, 418-422. Web.