Here is our topic is “what are the simple ways to increase NOI (Net operating Income) except increasing sales under absorption costing?” Therefore we have to find out the real solutions on it. Prior to go increasing NOI (Net operating income) we have to understand about Absorption costing, that what is Absorption costing actually?
Absorption Costing Meaning: As we know absorption costing wherever all the manufacturing costs are absorbed by only produced units. Alternatively, ended unit’s cost in inventory which includes direct labor, direct material and fixed manufacturing overhead and variable cost both. It frequently distinguished with direct costing or variable costing. The fixed manufacturing costs are not owed or assigned to the products manufactured in direct costing or variable costing. VC (Variable costing) frequently used in decision making for the sake of administration of the respecting company. For income tax reporting and exterior financial reporting the absorption costing is in fact needed. In the absorption costing method the fixed overhead is meant a product cost if it is not sold.Absorption costing is one sort of costing technique in which all types of usual costs either it is fixed cost or variable cost are charged to cost units produced or it is a technique in which all of the costs being linked with the production of goods or services. For manufacturing a demanding product a managerial accounting cost technique concerned. In absorption costing the total direct costs and overhead costs linked with manufacturing a product as cost based. GAAP (Generally Accepted Accounting Principles) needed absorption costing for outside exposure. Also absorption costing known as full costing or full absorption costing or the full absorption techniques.
In absorption costing, variable manufacturing costs, since labor and raw materials are simply a part of the cost. This method is else measured fixed overhead and variable to be part of in on the whole cost of the service or product is offered thereby. The majority of the companies are seeking to increase their OP (Operating profit) require reducing these costs in the lack of maximizing sales. In fact, increasing sales or lowering costs are the two ways to improve profitability of companies. For reducing production cost, cost accounting can give you excess information to implement your plan.
The disadvantage of absorption costing is where the administrator may raise production level except total sales consideration in to account. This year costs may delayed to the next year under higher production level. This is meant, the administrator will appreciate for the raises to more profits.
Ladder to increase NOI (Net operating Income) except increasing sales under absorption costing which as below:
Ladder-A) Make sure a budget for all of the production costs. Appraise past production periods to produce goods in order to determine the normal expenses of your company.
Ladder-B) Discuss regarding budget with supervisors or managers of production departments and set out your budget. Now think about how to reduce production cost of the company.
Ladder-C) Recognize the specific reasons of cost overruns these are supposed to labor, manufacturing overhead or direct materials and so on.
Ladder-D) Differentiate the real cost of productions against cost of the budgeted items. Seek for unfavorable variances for production of goods or commodities where the concerned unit may spend more money.
Ladder-E) Identify economy resources to rectify the overrun costs. To update processes of production costs which produce less waste or raise the output of production of your workers of companies.
Ladder-F) Change the cost accounting techniques either it not goes well in your business operations. Analysis and recheck or existing cost accounting system may effect in activity based costing which may more accurate and lower allocated cost of production rather than standard costing.
Hope you read out attentively this article and also find out by yourself what ladder A to F you got as useful for your NOI (Net Operating Income). Else I expect you may try your best to increase your companies NOI (Net operating Income) under Absorption Costing except increasing sales of your company.
