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Extending the Cost Calculation by Allocating Fixed Expeditures Using the Direct-Costing Method

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  • Prof. Univ. Dr. Ruse Elena

    () (Spiru Haret University Faculty of Accounting and Financial Management)

Abstract

Estimating future costs helps the manager understand how costs evolve, influencing his decision to develop a business strategy. Costs react differently to changes in production volume or in a business in general. There are costs that vary with the volume of production or with development, while others remain fixed regardless of the changes in the volume of activity. Between these extremes we can find costs with their characteristics (variable costs and fixed costs). The type of analysis used in the costs evolution is related to the method of calculation (the total cost analysis or determining the unit cost). The emergence of a calculation method that allows the rapid determination of the production cost but it also helps to establish indicators with a broad spectrum of information needed to ground the decisions for the effectiveness of a business led to the Direct-Costing method. The Direct-Costing method based on regrouping the production costs in variable costs and fixed costs, allows the obtaining of a partial cost, fixed costs being spread over the outcome. Using an improved version that allows the allocation of fixed costs on products plays a key role in the decision making process of the enterprise, leading to a better prediction of both the activity as well as of the outcome which allows choosing the optimum version.

Suggested Citation

  • Prof. Univ. Dr. Ruse Elena, 2010. "Extending the Cost Calculation by Allocating Fixed Expeditures Using the Direct-Costing Method," Ovidius University Annals, Economic Sciences Series, Ovidius University of Constantza, Faculty of Economic Sciences, vol. 0(1), pages 1831-1834, May.
  • Handle: RePEc:ovi:oviste:v:10:y:2010:i:1:p:1831-1834
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    More about this item

    Keywords

    direct-costing method; costs evolution; business strategy; enterprise;

    JEL classification:

    • M4 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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