Automotive Industry: Motor Vehicles and Motorcycles - Assignment Example

? Introduction Automotive industry is a concept that describes a huge and considerable range of companies and firms that are solely involved in the designing of motor engines, development, manufacture, marketing and the overall selling of vehicles. Taking a look at the automotive industry, it is not hard to make out that the business tops in terms of revenue considering that almost all individuals use or have ever used anything from the automotive industry (Warren, Reeve & Duchac, 2012). The term, automotive industry, is used to describe the companies and organizations that deal specifically with motor vehicles, motorcycles and the rest. Those that deal with the maintenance of motor engines such as retail shops cannot be considered part of the automotive industry. Since the development and upgrade of motor engines started from as long as 1890s, significant development and changes in the past years. For instance, the production of motor engines for use has greatly increased since today, the world population has grown and there is the growing need by consumers to have vehicles. With the upgrade of vehicles, there have been developments that have been mainly concentrated on the safety side of the vehicles (Weygandt, Kieso & Kimmel, 2010).  They have been ranked stricter on follow-ups than ever before, ranging from weight to security and to resilience, when it comes to today’s vehicles. This has come with the cost of new materials that have brought out new and advanced techniques for the construction and designing of vehicles. Before there was the knowledge that plastic could make vehicles, the sole material used at the time was metal. With the introduction of plastics, there has been advancement in the technology used for making newer vehicles. With the new technologies, manufactures have been able to answer to rising demands for advancements. Plastics have the ability to make vehicles to appear wonderful and attracting. Again with the introduction of plastic in vehicles, it has been known that they use current technology to make enhance vehicles. Another new development has been the introduction of new spark plugs that have been noted to endure more miles than those currently present. With the introduction of the new spark plugs, there have been concerns on the usage and cost of the spark plugs. From the design, development, manufacture, marketing and selling of the plug, there are concerns about how to design a more reliable method of choosing between the Job Order Cost System and the ‘Process Costing System’ (Crosson & Needles, 2011).  Compare and contrast between the Job Order Cost System and the Process Costing System. The Job Order Cost System is a system that is used when products are made with the basis on specific customer orders. With this system, every product that is manufactured is considered as a job, thus costs are made depending on the number of jobs done. With the production of these products, another thing that is considered is the services. Services rendered are also considered as a job and count in the overall costs. The system is designed to take into account and track by job the costs which are incurred while producing each job (Warren, Reeve & Duchac, 2012). This includes materials used, labor, and overhead that are present in the environment where the manufacture is taking place. When it comes to the process of ‘job order costing system’, ‘the record keeping’ and ‘cost assignment problems’ are complex in the system particularly when a company sells many different products and services compared to when it only has a single product or service. With the different products, the costs become different. Again, cost records must be maintained for each specific product or job. In order to track data for the jobs produced, there are certain documents that are used namely; 1. Job cost sheet: This is a document that is applied to track the total job cost summary detailing from the job number, job and client data and cost that involves materials, labor and overhead. 2. ‘Materials requisition form’: This document is used to ensure that the costs involving materials are properly allocated to jobs that are in the f the services offered. This is done using this form and it usually shows materials that are taken in raw and are added to the process. 3. Time ticket: This document identifies how long a worker spent working on a specific job (Warren, Reeve & Duchac, 2012).  When it comes to the process costing system, it mainly involves the homogeneity of products. When it comes to process costing system, there is little need to focus on the orders since the products are produced on a mass production thus, are produced not by order but in large volumes. In some companies, they have homogeneous products that are produced in large volumes and as the name dictates, they continually process their product, which involves moving it from one process to the next until the time the product is completed. Companies that use the process costing system take that the manufacturing costs that are incurred are allocated to the specific branches or departments that are within the factory process instead of the specific products that are manufactured. When it comes to this system, unit costs are computed at an average specification. Since the products are produced in mass production, the costing system assigns costs to masses of products that are similar (Warren, Reeve & Duchac, 2012). The process costing system may differ from the job costing system in terms of assigning costs but are similar in that these companies usually use the same quantity of direct materials, manufacturing and labor costs and also the overhead costs. The core difference is the averaging method that is used to add up the unit costs of the products and services offered. When it comes to the cost object in job costing, it is a job that comprises of a particular identifiable product or service. The manufacturing resources that are involved are different depending on any job that is done. When the averaging is done, care has to be taken in order not to make incorrect assumptions such as costing each job at the similar level as the manufacturing cost. When it comes to process costing averaging, attention is focused on the averages whereby the manufacturing costs over all units produced are used. Inventory calculations, decisions that involve pricing and profitability of the product are determined by costs of the product. The costs of a product are also important as they help to measure the level of management that has been effectively incorporated (Crosson & Needles, 2011).  Product Discussion and method For the project at hand, the introduction of new spark plugs to automotive manufacturers and the automotive aftermarket. The introduction of the new spark plug has been successful in the United States, and the development of the revolutionary techniques in manufacturing the special order spark plugs for auto racing industry proves that the new spark plugs come with an order from the consumers. Since the company is currently using the process costing system, a better option would be to use the job costing system since the new spark plugs are considered to be used in certain cars that are being produced. Using the current system that they are using, it would mean that they manufacture the new spark plugs using the mass production technique which would mean they would not have the ready market for the many products they produce. Since they have an order to produce the new spark plugs for the racing industry, the most recommended approach would be to use the job costing system, where the costs of the products are identified by the product (Crosson & Needles, 2011). This would mean that the company will not have to incur losses when they mass produce the product. Mass production of a product would mean that there has to be a ready market for the product produced so that the company can maximize on the returns. With this knowledge, the best available offer is if the company uses the job costing system in order to ensure that they get the costs for each job and service rendered. The process costing system may come at a later time when the market for the spark plugs is available but at the moment, the job costing system is the best at hand. Cost driver Cost driver is an activity particularly in business or in a firm that incurs a cost. Cost driver is something that can cause a shift in the cost of a particular activity. One activity might consist of a number of cost drivers depending on the characteristics of the said activity. When it comes to the automotive industry, for example, there are numerous activities that are involved (Crosson & Needles, 2011). These activities include the designing, manufacturing, production and selling of products. Taking an example from the above, say the production activity, there may be a number of cost drivers that may be associated with the process; machines, number of operators of the machines, occupied floor space, power that is consumed by the machines and also the output. The output includes both the waste and the important output. A cost driver is something that is meant to allocate the related costs. The cost of an activity, an activity in this case being the work that is done depends on the quantity of resources used to complete the activity. In order to determine cost drivers, a company or organization must choose the cost drivers that relate to the cost object. They should be best when it comes to management control, and when it comes to cost measurement; they are the easiest (Weygandt, Kieso & Kimmel, 2010).  Certain steps are followed in the management of cost drivers. They include identifying the cost object. This gives the purpose of distributing the cost of objects and also for there to be benefits. The second step is to look into the cost drivers that have potential. In order to get a cost driver that is efficient, there must be a reflection of a certain association between a particular activity and the cost that has been incurred (Weygandt, Kieso & Kimmel, 2010). This enables management control, cost measurement and co-relation. The next step is determining the correlation of the cost driver. Then the next step is the analysis of the management control. When choosing the suitable cost driver, it is important that the right cost driver be chosen so that it may have a positive effect on the management control. The last step involves the conclusion of the cost measurement. The main reason as to why companies and organizations involved in business use cost drivers and cost accounting for managing costs is to use limited resources wisely (Weygandt, Kieso & Kimmel, 2010).  ‘Job Order Cost System’ examples; Examples of products and businesses that can use the job costing system include manufacturing companies such as those that use numerous raw materials, accounting firms since they deal with individual clients, hospitals and billing companies and also clothing producers and retailers. Others may include companies that deal with film production. Process costing system examples; Examples may include companies that deal with the production of bread, cereal, steel, chips, computers, oil producers, mail companies, bottle companies and the also in the automotive industry. Conclusion Conclusively, it is possible to have a mass production of products, but this has to be with the assumption that the merchandise has a market. With this, the system for determining the costs incurred is the process costing system. The job order costing system deals with each product as a job that is done and together with the services rendered make up the final cost. The job order cost system may be involving but is efficient. References Crosson, S. V., & Needles, B. E. (2011). Managerial accounting. Mason, OH: South-Western Cengage Learning. Warren, C. S., Reeve, J. M., & Duchac, J. E. (2012). Managerial Accounting. Mason, OH: South-Western Cengage Learning. Weygandt, J. J., Kieso, D. E., & Kimmel, P. D. (2010). Managerial accounting: Tools for business decision making. Hoboken, NJ: Wiley.   Read More