Many companies, particularly those in the manufacturing industry mostly produce products following a forecasting on demand. Though from time to time it can make them on receiving orders from its clients. The items that are made and the work which is completed in accordance with the order of a customers is called job. Hence, the costing process intended to establish the cost of a job is extremely important. Job order costing therefore is the costing system which establishes the cost of the jobs obtained from a client (Walther, n.d.). In this way, job order costing approximations the costs of producing products in line with clients' instructions.
Cost Concepts
Cost is the sum of expenses whether estimated or actual attributable to a particular item (Bragg, 2012). Nevertheless, the word cost is difficult to define precisely. Its understanding rests on:
• The kind of industry or business.
• The setting it is used in.
Classification of Cost
Opportunity Cost
Resources of a companies in operation in markets are sometimes limited while investment choices remain many. The business thus has to make a decision or pick just those investment options that offers the business the most returns on investment. As the business gives up the best next choice for investing the resources in, this return or income that the business might have earned over time is known as opportunity cost (Publishers & Ashar, 2011).
Mary who attends college while she works on her part-time job earning a wage of $150 each week. During her spring break, Mary has decided to go to the beach and spend time with her friends. Mary’s boss has agreed to give her the time off but only without pay. The weekly wage of $150 that Mary will lose is an example of opportunity cost.
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...Is defined as a change in the Total cost once an extra unit of an item is manufactured. It can comprise of material costs, labor and a small percentage of fixed costs like selling expenses and administration expenses (Walther, n.d.).
Conclusion
Different jobs require various amounts of labor, expenses and raw materials subject to the superiority of the jobs to be carried out. The quality and size of items demanded can vary. Therefore, such a job might not need a standard manufacturing method. On no account are two jobs precisely similar. The finished product may not be the same. Clearly, the cost of every job will be different depending on the individuality of the work order obtained from clients.
In regards to job order costing technique, every job is taken as single cost centre. Expenses to a job are allotted on either machine hours, processing hours labor cost.
In today’s operational management arena, there are certain expectations from a managerial aspect that must be met in order to be successful. A comprehensive look at the Space Age Furniture Company will show exactly what the Materials Requirement Planning (MRP) calculations are for this company at present time and then take the information given in order to properly suggest ways to improve the sub-assemblies. In addition, there will be an analysis on the trade-offs between the overtime and inventory costs. A calculation will be made on the new MRP that will improve the base MRP. This paper will also compare and contrast the types of production processing to include the job shop, batch, repetitive, or continuous, and determine which the primary mode of operation should be and exactly why. A detailed description on how management can keep track of the job status and location during production will also be addressed. Finally, there will be a recommendation on they type of changes that need to occur that will be beneficial to the company and at the same time add value to the customer. This paper will conclude with summary of the major points.
An organization costing system is a system that helps the management with the strategy planning while the system plays an important role in providing accurate cost information about the products and customers (Curtin, 2006). UPS utilizes the Activity-Based Costing (ABC) system. ABC assumes that activities cause costs and that cost objects create the demand for activities (Marx, 2009). The key to cost allocation under ABC is to identify the activities that are performed to provide a particular service and then aggregate the costs of the activities (Gapenski, 2012). This is a marked departure from the practice of sharing overheads costs equally or overheads becoming part of the overall profit-loss estimate instead of component product pricing (Nayab, 2011).
Cost accounting system has two types, job order costing, and process cost system. These two cost systems are very different, almost every company uses order costing or process costing. Starbucks, is a coffee shop where citizens congregate to drink there morning coffee, study, and or socialize. Starbucks is one of the oldest and largest privately held specialty coffee retailer in the United States. (Starbucks) Their passion is to discover the flavors you love and always bring it home, delivering the look, taste and aroma of the world’s best coffee and teas. Job order costing is a very easy way in order to help Starbucks managers to know how much profit their company (Starbucks) made.
Since more than 40 years, Toyota Company was thinking how to develop the traditional process costing system and the production system. Some of the companies believe that the increasing of the production is a big profit, while Toyota proved the opposite. The more you increase the products out of the need of the market, the more losses you are going to gain. This kin...
Operations – To work out the right layout and work flow process in the company. The manpower resource allocation is also critical in the situation on the right balance of resource to handle the production. If possible, adopt a hybrid model to handle the flexibility in the product nature, make both the production line being able to configure standard and customized so to reduce setup and changeover time and cope with the demands.
Total cost is all of the expenses incurred in the production of a product, to include fixed and variable costs. Fixed costs, are expenses that are constant and do not change from month to month regardless of the amount of products sold. For instance, the rent of the factory is considered a fixed cost, for the reason that, the rent must be paid whether products are produced and sold or not. Variable costs,
B. Overview of Process Costing. Manufacturing costs are accumulated in processing departments in a process costing system. A processing department is any location in the organization where work is performed on a product and where materials, labor, and overhead costs are added to the product. Processing departments should also have two other features. First, the activity performed in the processing department should be essentially the same for all units that pass through the department.
Cost can be divided into fixed and variable and by considering into fact that fixed and variable cost can be unarguably split into two, even though they behave differently based on the level of sales of volumes. Since, cost is used in every field to determine the price of an item and the unit sold. Two of the main components of cost are fixed and variable cost and is used to differentiate between the costs that have no direct correlation to business and those that do.
Primary production of homogenous goods and several processes are undertaken for the finished product to be realized is what is called process costing. All stages of processing and costs accrued during manufacturing of a product will be added to the final batch of products. Keenness is
The job cost subsystem ensures that the costs of each job are gathered all in one place so the total cost of each job is identified. The identified total cost ($2783.70) will then allow markup and GST ($5877.26) to be added so the appropriate cost is invoiced to the customer for the job. The job cost subsystem also allows I Do Attire to identify which types of jobs are more profitable, so I Do Attire can focus to gain more profit in that job. It also identifies the accurate cost for each job, so the appropriate cost can be pr...
For example: with the increase of the number of products produced, the cost of operating a machine also increase. Second we have batch level costs which is associated with batches; producing a multiple units of the same product that are processed together is called a batch. The third type is product level costs which arise from any activity in order to support the production of products. The fourth and the last type is facility level costs, this costs cannot be determined with a particular unit, product or batch; this costs are fixed with respect to batches, products and number of units produced. A single measure of volume is used for allocating costs to each service or product in traditional method for example: direct material cost, machine hours, direct labor cost and direct labor hours. A cost driver is an activity that generate costs, it can be generated by two types of costs the first is a particular machine 's running costs where the costs is driven by production volume as machine hours; the second is quality inspection costs where the cost is driven by the number of times the relevant activity occurs as the number of
As such, there is material cost regulator, manufacturing control, labor cost regulator, excellence control and so on. Conversely, control over the price is implemented through the methods of financial control and typical costing (Meigs, 1998). The control methods aid the management in understanding the operating competence of a firm. Cost accounting also determines the selling price. The intention of all business firms is minimizing costs and maximizing profits. The costs incurred in producing goods and services may be reduced through incorporating alternate but cheaper resources of
Therefore, job order costing system is a widely used costing system in manufacturing as well as service operations. Moreover, when companies employ and accept orders or jobs for varying products, the assignment of cost to products becomes a strenuous task. Job order costing systems can be utilized in many aspects and entities in production of product offerings. An example of a situation in which you would use job order cost information is in an industry such as the building construction industry since each building is unique. Job-order costing systems need an average overhead rated based on a common measure of production, which includes labor hours, machine hours, or square footage (Edmonds, Tsay, & Olds, 2011).
...ns and material necessary that need to be consumed during the business processes. The biggest part of this activity is contract and orders related to natural gas supply, purchase and modernization of pipelines, and machinery required for maintain good condition of pipelines. Company needs to predict when and what amount of natural gas needs to be transferred to meet consumer demand. Another important task of procurement is purchase of compressors required for steady flow of natural gas to end customers and the maintenance equipment required to ensure high efficiency and dependable. It is required for the company to properly plan all supply orders to lower variable costs and increase profits. Each activity level requires supply of specific materials unique for the processes and operations, which shows that procurement is present in every single stage of value chain.
Since investments’ main aim is profit maximization, cost, output and returns are factors of value. To determine these factors and verify the profit, a market research on the investment has to be conducted. This is mainly to avoid losses. The main factor that has to be determined is the balance between the product’s supply and the demand at a certain price that is, market equilibrium (Aarhus school of business, 2004).