Types of Costs

The term "variable costs" refers to expenses that are directly related to the output volume (Garrison, Noreen, Brewer & McGowan, 2010). The difference between the degree of output fluctuation and the level of cost variation has a fixed ratio. For instance, if the cost of the direct materials is $50 per unit, it will cost an additional $50 to produce each additional unit of the product. However, it is important to remember that the only variable cost that changes is the overall variable cost. The variable costs for Edison Electronic Company include selling expenses, factory supplies, indirect labor, factory salaries, factory utilities, direct labor and material cost. Variable costs are disclosed as percentages or units of volume, as they cannot be stated in terms of time.

Fixed costs are the expenses that are constant for a given period irrespective of changes in the volume of the output. Such costs are primarily incurred in the passage of time and not with the production of a product (Zimmerman & Yahya-Zadeh, 2011). For instance, it is illogical to say how much the staff salary is per month, but it is logical to say how much the wages of such workers is per month. The fixed costs for the Edison Electronics firm include factory property tax, factory maintenance expenses, administrative expenses and factory depreciation expense.

Mixed costs are expenses that consist of both variable and fixed components. They are a conglomerate of semi-fixed and semi-variable costs. Due to the fixed element, they do not fluctuate in direct proportion to output and due to the variable aspect; they vary with volume. The mixed cost for the firm is sales expenses. The workers get a fixed salary and a commission that fluctuates depending on the number of sales units made by each one of them.

A change in the volume of sales affects the unit variable expenses the unit fixed cost, the total variable cost, and the overall fixed cost. As the sales grow the unit, variable cost remains the same while the total variable cost increases (Garrison, Noreen, Brewer & McGowan, 2010). Fixed cost can be either committed or discretionary. The managers in an entity can influence the discretionary fixed cost, but they cannot affect the dedicated cost. An increase in the volume of sales increases the value of the unit variable costs for discretionary expenses but not committed expenses. A decrease in the number of sales units decreases the amount of unit variable cost for discretionary expenses (Zimmerman & Yahya-Zadeh, 2011). However, the change in the sales volume of does not affect the unit variable cost for committed expenses. The same applies to the total discretionary and committed fixed costs.

Part 2

Uniform Costing

Uniform costing is a unique and probably the latest technique for costing and cost control. It is whereby all units in the same industry agree to accept and adhere to similar costing techniques and procedures (Zimmerman & Yahya-Zadeh, 2011). Uniform costing is associated with various objectives. First, it aims to aid a meaningful and standards cost comparisons among the firms in a specific industry. Second, it aims at locating and eliminating cost inefficiencies in businesses, by ascertaining their efficiencies and comparing their value to the industry figures. Third, the goal of standard costing is to eradicate unhealthy competition by fostering healthy rivalry. Uniform costing also aims at proving standard information and data to facilitated decisions making by policymakers such as tax authorities and restrictions.

EEC can use uniform costing under various circumstances and for different functions. The Firm can use the technique to achieve uniformity in the various areas within an organization where standardization is necessary. First, EEC can use the methods to make uniform cost units, costing system, costing and cost control techniques, costing period and adsorptions of costs (Marie & Rao, 2010). When EER achieves uniformity is the above areas its reporting is likely to be accurate hence effective decision making. Additionally, EER can us the technique to accomplish standardization in areas such as cost reports and statement. If standardization is achieved in these areas, the company will be able to benchmark with the industry and other players in the industry. Such comparisons act as a barometer for cost and financial performance.

Uniform costing has various advantages that accrue to the interested groups. First, it ensures that firms maintain high standards or proactive and performance. Professional consultants are usually employed by the industry to establish the standards uniform costing systems. When such systems translate to a firm such as EEC, it is likely to perfume better. Second, it helps to undertake useful cost comparisons. A uniform costing system allows businesses to locate points of cost inefficiencies relative to the industry and the individual firms in the industry (Marie & Rao, 2010). Additionally, the costing method fosters healthy competition among companies in the same industry. Uniform costing helps in eliminating price cutting techniques and instead encourages firms to adopt cost-efficient practices. Further, the method requires the adoption of computerized account. Automation of the accounting systems increases reliability on accounting data and information.

The method also has certain disadvantages. First, it encourages a practice whereby members in an industry are eager to look at the results of other firms such that they often forget to analysis analyze their results extensively. Moreover, uniform costing is problematic to implement especially when firms in an industry have a different scale of operations.



References

Garrison, R. H., Noreen, E. W., Brewer, P. C., & McGowan, A. (2010). Managerial accounting. Issues in Accounting Education, 25(4), 792-793.

Marie, A., & Rao, A. (2010). Is Standard Costing Still Relevant? Evidence from Dubai. Management Accounting Quarterly, 11(2).

Zimmerman, J. L., & Yahya-Zadeh, M. (2011). Accounting for decision making and control. Issues in Accounting Education, 26(1), 258-259.