Introduction

 

Management accounting is undergoing a renaissance in response to technological changes, globalization, growing risk management concerns. In these challenging times management accountants help ‘steady of the sleep’ by acting as their organizations interprets, sage advisors, and ethical keepers of the numbers. Management accountants are qualified to help their fellow managers achieve good business results because they have earned an advanced certification that addresses all important aspects of accounting inside organizations. For the internal decision making of a company variable costing method is too much significant. Another costing method is absorption costing; this costing method is known as full costing method. This costing method is used for external purpose. It is logical that producing more units would have no impact on profits unless the units are sold. As we will discover in this report, absorption costing—the most widely used method of determining products costs—can artificially increase profits by increasing the quantity of units produced.

 

Origin of the report

 

We are lucky to say that our honorable course teacher M. Takibur Rahman Lecturer, Department of Accounting and Information System, of Faculty of Business Administration and Management. Assigned us a report on Comparative Analysis of Effects in Production on Net Operating Income Due to Use of Variable and Absorption Costing: ‘A Case Study on Square Pharmaceuticals Ltd.’. This report is prepared on the basis of surveying the Square Pharmaceuticals Limited.

 

Purpose of the Report

 

As a business expectative of future, we should have to gather experience beside our survey. We should not concern our lesion only in classroom but to implement it in practical life that will help us in our future life .A clear objective help in preparation of well decorated report in which other take the right type of decision .So, we identifying objectives is very much important. Our purpose of preparing this report is:

 

To know about the absorption costing and variable costing

 

To explain the difference between absorption (full) costing and variable costing.

 

To prepare an income statement using variable costing and absorption (full) costing.

 

To discuss the effect in production on net operating income due to use of absorption (full) costing and variable costing.

 

To explain the impact of JIT (just-in-time) on the difference between full and variable costing income.

 

To discuss the benefits of variable costing for internal reporting purposes.

 

To discuss the benefits of variable costing for internal reporting purposes.

 

To understand the advantages and disadvantages of both variable and absorption costing.

 

Limitations & Scope of the Report

 

As a student of faculty of Business Administration and Management, 6th semester, this is our initiative for making a report on ‘Comparative Analysis of Effects in Production on Net Operating Income Due to Use of Variable and Absorption Costing: ‘A Case Study on Square Pharmaceuticals Ltd.’ by meeting a survey. Beside this we have faced the following hindrances in preparing this report:

 

 Lack of knowledge and experience

 Short of time

 Lack of computer facilities

 Lack of sufficient privileges

 Lack of communication facilities

 

The survey report focuses on ‘Comparative Analysis of Effects in Production on Net Operating Income Due to Use of Variable and Absorption Costing: ‘A Case Study on Square Pharmaceuticals Ltd.’. The survey may not be more comparable or more valid. Moreover, the report is emphasized on the primary data such as interview of the manager of Square Pharmaceuticals Limited, as well as secondary data such as annual report of Square Pharmaceuticals Limited.

 

Methodology of the Report

 

This report is based on both primary and secondary data. Initially, the work is started with data those were available at Company’s Annual Report and company’s news letter. Moreover, it becomes helpful to gather some more information from the website of the company.

 

Later on, the work progressed through some depth interviews of good range professionals trying to heat some expected area of the study. After that, an effective questionnaire is designed to collect likely data from the target group of people.

 

Then we analyze those data from many angles, in different aspect and present the information in different segment according to their category, in compact way. We highlight different important things, which we found during our survey. After doing all of those we submit the report to the proper authority.