The paper “ Full Costing and Activity Based Costing” is an informative example of a finance & accounting assignment. In the marginal costing method, only the relevant costs incurred in the production of products are considered in decision-making (Atrill and McLaney, 2007). These costs include direct material, direct labor hours, total variable costs, and direct expenses (Clinton, 2004). Therefore, the cost of production of the three products which are relevant in decision making based on the approach of marginal costing Ouse £ 32, Clifton £ 19, and Lendal £ 42. The costs have been determined by summing up all the direct labor and the direct material costs incurred by York Ltd in the production of the three products.
The margin contributions of the three products have also been determined as Ouse £ 262, Clifton £ 481and Lendal £ 358. Based on the above-calculated figures, it is evident that Clifton (£ 481) is the most profitable of the three products based on the marginal contribution analysis method. Lendal with a contribution margin of £ 358 is the second most profitable and ultimately Ouse with a contribution margin of £ 262.
Therefore, based on the contribution margins highlighted above, the management of the company should produce more Clifton units, followed by Lendal, and finally of fewer Ouse units in order to maximize profits which in turn will lead to maximization of shareholders wealth. Therefore, for sound management decision-making, the management should allocate more resources to Clifton, Lendal, and less to Ouse for profit maximization. ABC and Full CostingWhere overheads form the main portion of costs incurred in the production of products relative to prime costs of production like direct labor, variable overheads, direct expenses and direct materials correct apportionment of overheads to products is important for decision-making (White, 2004 p. 17).
In modern business organizations, service unit departments play a major function unlike in the past when manufacturing activities were undertaken mainly by the production departments of the organization.
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