Sample Essay

Standard costing is based on determining the direct costs of the direct material, the direct labor as well as the manufacturing overhead. In this the standard costs and not the actual costs are considered and assigned. The limitation of this technique is that due to the fact that it does not rely on actual costs and that manufacturers have to account for the actual costs, the variances are always present. Therefore this option is also not suitable for the company.

The absorption costing method is also known as the full costing method and takes into account all the manufacturing costs. The direct materials are traced to the finished products, the direct labors are traced to the individual units of the products being produced and both the fixed and the variable manufacturing overheads are included. However as this option can drive the overheads for the costing to be very high, this option of costing is also not appropriate for the company.

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