According to a recent survey undertaken by CIMA, variable (or marginal) costing is used by almost 40 per cent of firms. Management accountants from a wide range of sectors, including manufacturing and service firms, were queried on how they use traditional techniques to cost products, set prices, analyse and report revenues/profit and allocate resources. Absorption costing was used by approximately 45 per cent of respondent firms. It also reports that variable costing is widely used across organizations of all sizes. Based on this quite recent research, it would seem variable costing is a widely used internal reporting and analysis tool. Bloomfield (2015) urges a rethink of managerial reporting, particularly in how some management accounting courses are taught. He highlights how costs are recorded in the double entry system of accounting, which leads to costs which are not necessarily the best for decision-making purposes. He notes ‘without a knowledge of doubleentry bookkeeping, it is hard to understand why absorption costing systems do a better job of reporting the income associated with each operating period’
Questions:
1 Do you think variable costing is more likely to be used by manufacturing or service sector firms?
2 Do you think integrated accounting information system would be able to produce internal profit statements using variable costing?