1. List the advantages and disadvantages of direct costing and absorption costin

ID: 2454044 • Letter: 1

Question

1. List the advantages and disadvantages of direct costing and absorption costing. Why is activity based costing currently the recommended strategy?

2. What is the difference between cost and price?

3. Why would a firm continue to produce styles when it can source styles and not have any of the start-up costs or problems? What other factors does a firm have to consider?

4. How would costs change if a style were sourced? Would there be fewer costs? Additional costs?

5.Why would a firm not put all new styles in a line every season?

6. What factors are negotiated in determining how much a retailer actually pays a manufacturer for a product?

7. What are the advantages and disadvantages of cost-based pricing?

8. What are the advantages and disadvantages of demand-based pricing?

Explanation / Answer

Solution:

Question 2

Difference Between Cost and Price

Cost

Price

1.Cost can be defined as the expense incurred by the firm in order to produce a product or service.

2.Cost is expense or amount excluding of profit.

2.Price in inclusive of the profit amount

3.Example – the firm purchased direct material for $ 10, it will be the cost to the firm.

3.Suppose, the same material sold by the firm at $ 20, it will be the price to the firm.

4.Examples of cost can be – direct material cost, direct labor cost, overheads expense.

4.Price is the price charged by the firm from its customers.

5.There are normally two types of the cost – fixed cost and Variable cost.

5.Price does not have such categories.