Month: February 2021

THE PRINCIPLES OF THE SIMPLEX METHOD The simplex method is a method of solving linear programming problems with two or more decision variables. The formulation of the problem using the simplex method is similar to that required when the graphical Read More …

THE GRAPHICAL METHOD The graphical method of linear programming is used for problems involving two products. Formulating the problem Let us suppose that WX manufactures two products, A and B. Both products pass through two production departments, mixing and shaping. Read More …

LIMITING FACTORS A scarce resource is a resource of which there is a limited supply. Once a scarce resource affects the ability of an organisation to earn profits, a scarce resource becomes known as a limiting factor. A limiting factor Read More …

THEORY OF CONSTRAINTS Throughput accounting is a product management system which aims to maximise throughput, and therefore cash generation from sales, rather than profit. A just in time (JIT) environment is operated, with buffer inventory kept only when there is Read More …

COSTING SYSTEMS AND MANUFACTURING PHILOSOPHY Costing systems have evolved to reflect a manufacturing philosophy that is based on the need to achieve competitive advantage. Flexibility and the ability to respond quickly to customer demands are vital. Product life cycles are Read More …

WHAT ARE LIFE CYCLE COSTS?   Life cycle costing tracks and accumulates costs and revenues attributable to each product over the entire product life cycle. A product’s life cycle costs are incurred from its design stage through development to market Read More …

WHAT IS TARGET COSTING?  Target costing involves setting a target cost by subtracting a desired profit margin from a competitive market price. To compete effectively, organisations must continually redesign their products (or services) in order to shorten product life cycles Read More …

FULL COST-PLUS PRICING In full cost-plus pricing the sales price is determined by calculating the full cost of the product and then adding a percentage mark-up for profit. The most important criticism of full cost-plus pricing is that it fails Read More …

DEMAND In the first sections of this chapter you will be learning about the many issues that need to be considered in decisions about the price which can be charged for a product or service. The first issues relate to Read More …

ACTIVITY BASED COSTING An alternative to absorption costing is activity based costing (ABC). ABC involves the identification of the factors (drivers) which cause the costs of an organisation’s major activities. Support overheads are charged to products on the basis of Read More …