...Costing Methods Paper Erica Rice ACC/561 18 February 2013 Edward Hastings Costing Methods Paper What strategies did the management of Super Bakery, Inc. use? Super Bakery’s challenges are to control cost by reducing the overhead for serving their customers in different parts of the country, and by doing this they can use the ABC method; Activity-Based Costing System to enhance control over overhead costs and under ABC, the company can trace many overhead costs directly to activities by allowing some indirect costs to be identified as direct costs like the customer’s order cost for every individual customer that seems to be the same amount. The managers can become more aware of their responsibility to control the activities that generate those costs. The second reason that Super Bakery’s went with ABC was because of trying to control cost in the business part of the company like, manufacturing, sales, warehousing, and shipping. By taking control of the product cost this should contribute to settling selling prices that can help them achieve desired product success. With a more precise cost data the managers could decide on whether to buy or make a product part or piece, and whether to remove a product. ABC helps the managers to minimize the amount of overhead that is payable to their product. If the overhead is payable based upon the amount of direct labor used, then the managers can minimize the amount of overhead payable to their product by minimizing the amount of...
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...Job Costing Job costing is a technique used where jobs are performed to meet the customer’s standards. It usually involves accounting for indirect and direct costs. For example, In a situation where you surveyed a week in business operations in what had looked like to be a busy week, but then the next day a bookkeeper shows a report that says the business lost money. One report says that integrators as a cohort are improving at estimating the materials side of job costing, but as jobs change and become more difficult, they tend to get the time and labor estimates wrong. They call it “scope-creep,” which the company adds time to projects like safety training, that wasn’t on the original time to be budgeted. Spencer Bullins says that labor projections are the most difficult part of job costing because after estimating labor costs coming in they have to protect them from things that change during jobs. Commercial integrators tend to use software for job costing, but most of the time it’s programs like Excel and/or Quickbooks. These programs are too generic to generate labor values and establishing workflows. For instance, people that use these programs can do job costing effectively. For example, for the past twenty years, Ray Bailey has been using a system that uses Microsoft Excel that attaches nine labor categories to a single part. The categories range from opening, packing, installing, and cleaning products. Also, if the company has a twenty four floor building they also...
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...1.5 gigabyte computer memory chip on behalf of EEC while using a job order costing system, which is a costing system where costs are to be collected then assigned to different units of production for each unique job, or process costing system, which is a costing system that is known to accumulate production costs by using a department or process’s data over a specific period of time in order to report the costs of a new product. I am going to focus and highlight the many differences within the various systems in use to do this job. I will also attempt to describe how these selected systems will work for EEC in order to track the costs of these products. Furthermore, my job in this assignment will be to identify the actual cost driver in order to explain the pattern and process of cost tracking. I will then go on to provide examples of products that the EEC’s firm could offer in order for a job-order costing system to be appropriately applied. •Should EEC use a job-order costing system, which is a costing system where costs are collected and assigned to units of production for each individual job, or a process costing system, which is a costing system that accumulates production costs by process or department for a given period of time, to report the costs of this new product? ◦How are the systems different? I believe that EEC should most definitely use a job-order costing system. “Job order costing systems are simply the various components of a much broader form of accounting...
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...Ashley American InterContinental University Unit 3 Discussion Board Managerial Accounting ACCT310-1205B-06 January 27, 2013 Job order costing is used in situations where there are different products that are being produced each period. According to accounting for to management (2000), the costs are traced to the jobs and then the cost of the jobs that are divided by the number of the units in the job that are arrive at the cost per unit (para. 1). The type of industry that uses this type of system are places like the Hospitals, laws firms, movie studios, advertising and accounting firms. All of these industries deal with procedure and providing a type of service. The companies have to focus on more than one good and it can become a complex job when it comes to job order costing system. But it is also a way to the business organized and knows what area is helping them out in the long run. Manufacturing costs can be in three broad categories which are direct materials, direct labor and manufacturing overhead. Process costing methods are used for mass productions. It is a way to analyze the net cost of a manufacturing. Figuring out how much it would cost to fill the goods and how material is needed to keep them stocked. Soda, cereal, toilet paper, gasoline are some items where the process costing system occur. This system is mainly where homogenous items are being manufactured. According to Vitez (2003), It saves time and management money. But its how management accountants...
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...Bennett system has a higher cost of paperwork because we are using the Job Order Costing and the Conley System uses process costing. Conley Corporation uses Process costing in accumulating cost of production. We are costing products based on per job order bases. Conley is costing their production on a per department basis because it has standard model design. Our products are based on costumer's specification, and therefore each product is unique. Process costing can not be used under our present set-up. Possible reasons for cost differences between actual and standard costs under Conley's system: a. Materials Price and Usage Differences b. Labor Rate Differences c. Labor Efficiency Difference d. Production Volume Difference Standard costs are usually developed from previous year's experiences and some adjustments from each department's managers. If our product's sales volume is seasonal in nature, it would be better to have our overhead allocation rate change to monthly from annually. If not, we could stick to annual overhead rate for simplicity of computation. Under our present production, it is preferable to stick with Job Order costing, unless we change our products to a more standard design (no customer specifications), and Process costing will not work under our system. 2. Since Bennett main operation concentrates on manufacturing customized trucks, they could still maintain using its job costing. This is because each model that they produce may not be applicable for future...
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...rationale." Business - Accounting Alternative Costing Methods The text presents job and processing costing systems as virtual “polar extremes,” there are many situations where it may be best for a company to use a hybrid system that combines attributes of both systems. Describe such a situation and discuss how the hybrid system may be better than either pure job or pure process systems. Think Twice Assume you own a business that makes two complementary products for which you allocated manufacturing overhead proportionally. A competitor is trying to undercut your price for one of the products. How might ABC costing help you better compete with this pending threat? Activity Base Costing- How do managers cost products or services using ABC systems? When should managers consider using an ABC costing system? How should they decide to adopt this method? Alternative Costing Methods I would like you all to select a costing method: process, job, or activity based. Describe the nature of your chosen method. What types of organizations should choose that method? How is this method different from the costing methods you did not choose? I have implemented a job costing system in my company. If you were my corporate controller, how would you implement a job-costing system? Why is process costing a better costing method for certain industries? What would happen if they used a job costing system? Can we explain three major source...
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...Bakery, Inc. This paper will layout the strategies that the management of Super Baker, Inc. used, as well as discuss why management thought it was a good idea to an activity-based costing system into their business. The comparison of a job order cost system and a process order system will be analyzed to decide which would be the best fit for Super Bakery, Inc. Super Bakery, Inc. was founded by ex-National Football League Pittsburgh Steeler play Franco Harris his vision was to provide vitamin, mineral, and protein enriched doughnuts to schools and other institutions. Super Bakery is a virtual corporation, in which only the core, strategic functions of the business are performed inside the company (Darling, October 1996).The main thought about running a company this way was to pull other organizations with expertise in these areas together to reduce the amount of liabilities for facilities, labor, and working capital. The company can claim that this system of outsourcing is working because sales have grown at an average annual rate of approximately 20%. Even though Super Bakery was experiencing some success with the outsourcing at the same time it was proving to be a challenge to the organization in terms related to controlling the costs. The organization started off with a more traditional costing method that simply spread the costs of the operation to every customer. This caused every customer orders to appear to cost the same amount to complete but this was not the case...
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...deduction of 5% for the first day, and 1% for each subsequent day including the actual day on which the work is received. Weekends and public holidays are included. FORMATTING i. Font: Times New Roman ii. Font Size: 12 iii. Single Line Spacing iv. Header - Mention Your Name and Student ID in the header of EVERY PAGE. v. No colorful text or images. vi. Add Page Numbers RESULTS i. Results will not be released individually over the phone or email. Result will be visible to all students via LMS on a date that will be announced soon. GOOD LUCK! Q1. Draw Job-Order Costing Document Flow Summary. (5) Job Cost Sheet Material Requisition Manufacturing overhead Cost Q2. What are the differences Between Job-Order and Process Costing?(5) Job costing involves the detailed accumulation of production costs attributable to specific units or...
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...Activity- Based Costing & Process Costing Job Order Costing: 1. Many different jobs are worked on during each period, with each job having different production requirements. 2. Costs are accumulated by individual job. 3. Job cost sheet is the key document controlling the accumulation of costs by a job. 4. Unit costs are computed by job on the job cost sheet (Similarities between Job Order and Process Costing System, nd). Process Costing: 1. A single product is produced either on continuous basis or for long periods. All units of product are identical. 2. Costs are accumulated by departments. 3. The department production report is the key document showing the accumulation and disposition of costs. 4. Unit costs are computed by department on the department production report (Similarities between Job Order and Process Costing System, nd). The job order cost system is most suitable when the products differ in types of material and work performed. Thus, each product is made according to the customer's specifications and the price quoted is closely tied to estimated cost. Examples of types of companies which might use job order costing are printing companies and shipbuilding firms (Fletcher, nd). The process cost system is commonly used where products are manufactured under mass production methods or by continuous processing. Industries using process costs are paper, steel, chemicals, and textiles. Assembly-type processes such as washing machines and electrical appliances...
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...When are companies likely to use a job costing system or process costing system? Describe the specific characteristics of each system and provide several examples (i.e. at least two) from companies in your community for each system (i.e. at least four companies should be described). Companies use both job costing system and process costing systems. It is important to understand the differences in the two systems. According to Blocher (2013), a job costing system is a product costing system in which it collects and assigns certain costs to a specific job. A process costing system differs in that it collects product or service costs by process or department and then assigns them to a large number of similar or nearly identical products. According to Goss (2003), the easiest way for costing is to average all the indirect costs and allocate them. This would be an example of a process costing system. Some local companies are Dixie Brick and Coca-Cola. Dixie Brick is a company that develops brick blocks for local construction companies. Since the company produces a mass amount of bricks it is best to use the process costing system. It would not be beneficial to assign a different price to differing bricks. Coca-Cola is also a company that produces nearly similar products and sells the products for the same price. Different ingredients are used in the different flavors of products. The products are still similar enough that it would not make sense to assign different prices for...
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...jobs that I chose in my business choice are: 1. An order for a custom dining room table 2. An order from a distributor for 20 modular living room sets,(couch, loveseat, chair) 3. An order for a modular wrap around couch and custom coffee table. Job 1 the custom dining room table will need to have the cost figured using the Job Costing System. I will use the 7 steps in order to determine the cost allocations for the job. I will then complete a Job Cost Sheet. I will breakdown the materials needed, the price for the salary of the designer, the labor and the overhead. After that I can then determine how much the job will cost and in turn the amount to charge the customer in order to make a profit. Job 2 is purely s manufacturing job. I will use the process costing system. The 7 step from the order to identifying costs, selecting an allocation base, establishing indirect costs, computing the rate based on prior jobs completed, computing the indirect costs and then computing the total costs so that I can determine the cost to the customer. Job 3 is a combination job which I will use both the Job Costing System and the Process Costing System because part of the job is manufacturing like items and part of the job is designing a custom coffee table then manufacturing multiple units of that table. Again I will use the seven step process in order to determine the cost per unit and what to charge the customer in order to make a...
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...understand why a cost may rise or how to decrease a cost. Cost management is an aspect of managerial accounting. “Managerial accounting is concerned with providing information to managers-that is, the people inside an organization who direct and control its operations. In contrast, financial accounting is concerned with providing information to stockholders, creditors, and others who are outside the organization.” (Noreen, Brewer, Garrison (2011)). From the inception of a business idea cost management is implemented. When considering opening a business the very first activity that is performed is a cost analysis of what the cost will be to open a business. From there a revenue projection is completed in detail of a certain time period to determine if there will be profit after the cost of the business. By using managerial accounting the Controllers and Cost Accountants within a company are able to control, understand and explain what cost within a company have the most effect on the overhead within a company and what can be done to reduce those cost. Some of the daily activities that are done to control cost are tracking and controlling revenue recognition, cost of materials, labor and overhead, and finding issues that are costing the company money and why. “Cost management...
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...Costing Methods ACC/561 May 14, 2012 Costing Methods According to Kimmel, Weygandt, and Kieso (2009), “a traditional costing system allocates overhead on the basis of a single predetermined overhead rate.” Although this may be the best costing method for some businesses, not all businesses are the same. Created in 1990, Super Bakery, Inc. started by using the traditional costing methods to determine costs; however, quickly came to realize that the methods were not taking individual markets into consideration. The purpose of this paper is to elaborate upon Super Bakery, Inc.’s transition from a traditional costing method to an activity-based costing method. In doing so, an attempt will be made to highlight the strategies of Super Bakery Inc.’s management team. Furthermore, this paper will share why the management of Super Bakery Inc. deemed it necessary to install the ABC system. Finally, the paper will divulge why a job order cost system or a process order cost system would or would not work for Super Bakery Inc. Strategies Super Bakery Inc. is a virtual company that outsources most of the manufacturing activities. By outsourcing most of the manufacturing activities, Super Bakery Inc. can save on cost associated with owning machinery. Not only does Super Bakery Inc. save on the cost of the machinery but also on the costly expense of maintenance and repairs. Furthermore, the company could reduce overhead expenses such as salaries and even utilities. By using this strategy...
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...Explain the nature, purpose and scope of responsibility accounting According to the text book Managerial Accounting a responsibility accounting system is set up to help control costs assigned to specific units. The website accounting tools.com, goes further to describe it as a system that compiles revenue, cost and profit information at the level of those individual managers most directly responsible for them. The responsibility accounting system involves a performance report. This performance report accumulates and reports costs and expenses that a manager is responsible for and their budgeted amounts. Differentiate between various costing systems and various forms of responsibility centers According to MUSE, cost serves two purposes, planning and evaluation. For planning, cost might be a reference point for determining selling price of a product, for evaluation, it could be used to compare actual costs to budgeted costs. Multistage process and job order costing systems are similar in assigning labor, material, and manufacturing support activity to products. The two systems are different because with a job order cost system, production requirements vary across different jobs, and are measured for individual jobs, where as in a multistage process, production requirements are the same across jobs. Responsibility centers are identifiable segments within an organization for which individual managers have accepted authority and accountability. These centers define what...
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...Landau Company Problem Statement: What Costing System Landau Company should best represent Landau Company’s Monthly Income Statement? Objectives: 1. To cite Pros and Cons of the chosen costing system 2. To choose and adapt a new costing method that better manages the cost of Landau Company’s Monthly Income Statement Areas of Consideration: 1. The significant Increase of sales in July over June. 2. Lack of control over long run costs that can bankrupt a company. 3. Landau’s margin on products for the months of June and July. 4. The company is looking for a new approach for internal managerial purposes. Alternative Courses of Action 1. Variable Costing System Pros * Provides benchmark on the profitability of manufactured products * It simplifies the bookkeeping of the company * It helps in establishing a responsible accounting in the company from which it identifies what the costs should be, who are the responsible personnel and whether costs are still under control. * Reduce time consuming efforts of allocating fixed overhead to individual products * Advantageous in making periodic management decision for the use in internal reports * Profit for a period is not affected in the changes in inventories Cons * Variable costing is usually prepared on a monthly basis. The information in the reports may not be used or too insignificant for the next accounting period. * Variable costing cannot produce reliable tax reports or any...
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