Advantages And Disadvantages Of The Hampshire Company Essay

1074 Words Apr 10th, 2016 null Page
The Hampshire company did an analysis of the most optimal cost method based on their costs using the variable cost method and absorption method. The analysis showed that sales were the same at 750,000 as well as the direct material, direct labor, and manufacturing costs totaling 392,000. The methods both have their advantages and disadvantages and they are listed below:
“Advantages of Absorption Costing
Absorption costing offers an advantage when you do not sell all of your manufactured products during the accounting period. You may have finished goods in inventory. Because you assign a per-unit amount for fixed expenses, each product in inventory has a value that includes part of the fixed overhead. You do not show the expense until you actually sell the items in inventory. This can improve your profits for the period.” Advantages & Disadvantages of Using Absorption Vs. Variable Costing. (n.d.)
“Disadvantages of Absorption Costing
Absorption costing can artificially inflate your profit figures in any given accounting period. Because you will not deduct all of your fixed overhead if you haven 't sold all of your manufactured products, your profit-and-loss statement does not show the full expenses you had for the period. This can mislead you when you are analyzing your profitability.” Advantages & Disadvantages of Using Absorption Vs. Variable Costing. (n.d.)
“Advantages of Variable Costing
Variable costing shows your profits after all the bills have been paid for the…

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