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Essay / Research Paper Abstract
This 3 page paper looks at the difference between absorption costing and activity based costing by applying tem to a retail firm such as Pier 1 and showing how they may each be applied. The bibliography cites 3 sources.
Page Count:
3 pages (~225 words per page)
File: TS14_TEpiercost.rtf
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Unformatted sample text from the term paper:
of the way that that costs are allocated, as such we can make some assumptions and present the way the costs may be allocated. The traditional way this takes place
is through absorption costing (Watts, 2004). In a retail environment when looking at the products as well as the individual stores within a chain the allocation of direct costs
is straight forward, these are based on the direct costs incurred, for the store selling goods these will be the cost of the goods themselves. The allocation of the overheads
associated with the store may then be linked directly to the store, such as the wages for the sales and admin staff and the utilities costs. However, there are some
costs that are more difficult to allocate. The head office has a number of essential functions that supports all of the stores; likewise marketing the brand across the country benefits
all of the stores. The way a firm looks at costs will usually see these costs that are incurred allocated to the different profit centres, using some type of
formulate. For example, if we look at a single region and assume that there are 5 stores, with different sales levels, the costs may be allocated on the basis of
the level of sales or equally across each of the stores so each store carries the same charge. If we consider a small store that has only 10% of the
region business and the total overhead costs to be allocated are $200,000, this will mean that on the basis of proportional allocation to sales there will be overheads of $20,000
allocated; if all stores are given an equal share of the overhead they may have a $40,000 allocation. This can have a significant impact on profit levels. Looking at these
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