Date Profit making businesses have to manage their production costs in order to maximize profits and the wealth of their shareholders. Manufacturing firms therefore have to determine the costs of their products and reduce the cost elements using different costing methods…
With the use of the budgets, businesses will produce different management reports to the various stakeholders. The reports will be important in the evaluation of the business performance and act as a motivation to the employees. Product cost can be defined a s the total costs that is incurred in the manufacturing of goods or the provision of servicers. Various cost elements are involved in the process of producing a product. These include material cost, labor costs, overhead costs, and other expenses (Polimeni, 2000). The sum of these costs constitutes product costs. Material costs are labor costs are direct cost that are associated with the goods and are easy to determine when determining the cost of products (Epstein & Lee, 2001). Material costs can be determined from the purchase receipts that are made. Labor expenses are also determined from the salaries and other allowances that are paid to the workers and other experts that are involved in the production of goods and services. The last component of product costs that includes the overhead expenditure poses a challenge to cost accountants on how to incorporate them in the product costs (Horngren, 2009). There are different cost accounting methods that can be used to allocate these costs to the products to determine the total costs of the products. Product costs are necessary for decision-making and for external purposes. Product costs can be determined using the following methods. First, marginal costing system can be used in calculating the product cost. In this method, only the variable costs are used in arriving at the product prices (Polimeni, 2000). The organization will therefore use these costs to make decisions. Fixed costs and sunk costs are not included in the calculation because they are past costs which cannot influence the future managerial costs. Product costs determined in this manner will only be important in making internal deci9isions and not for external uses. The second cost methodology that can be used is the total costing or absorption costing method. In this method, the prices of products are determined by adding all the costs incurred in production including the fixed costs and other overhead costs (Epstein & Lee, 2001). All the costs are considered relevant because the management incurred the cost in the process of making the product. The method of should be used in determining the selling price that is charged on the products because it incorporates all the costs involved in the process (Lucey, 2002). The prices can therefore be determined by adding a desired margin on the cost of the goods. Moreover, the product costs can also be determined by the use of activity based costing. Activity based costing assists in the allocation of overhead costs that are then summed up to the variable costs to arrive at the total product costs. In this method, the overhead costs are allocated to the various cost centers and using the cost drivers. The method helps in charging costs to the various activities. This method has been used widely to control the costs of activities and make managers do away with non-essential activities that do not add value to the product manufacturing. Through the elimination of the dummy and redundant activities, the management will be in a position to achieve efficiency and effectiveness in the process. The last costing methodology that can be employed is the throughout costing. This method is criticized by the accountants and is ...
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“Finance and Management Essay Example | Topics and Well Written Essays - 1500 Words”, n.d. https://studentshare.net/finance-accounting/65655-financial-and-management-accounting-indivi.
Cost accounting as a branch of accounting is concerned with the determination of costs and controlling of the coasts that are incurred by organization in their daily operations. To realize these objectives, organizations have to develop costing systems to ensure that their processes and costs are controlled and to ensure they plan for the future.
Cost accounting and information systems offer benefits to many companies; cost accounting is normally a method of accounting in any organization that is concerned with manufacturing of goods and goods sold at the same time. Cost accounting systems offers a means for performing an accurate inventory valuation of the inventory at hand.
The R & D manager has to justify the money spent on research by coming up with new products and processes which would help to reduce costs and increase revenue. If the R & D department is like a bottomless pit only swallowing more and more money but not giving any positive results in return, then the management would have no choice but to close it.
The Criteria include
Executive Summary & Company Overview, Product or Service, Market Need, Market Potential for the Product or Service, Competitive Advantage, Management, Financial Forecasts, Long term Profitability, Collateral. The Business plan of BBC is analyzed against each criterion and the interpretations and recommendations are given accordingly.
Once the management makes good decisions, the future of the business becomes more certain and it also ensures that the profitability of the business is guaranteed (Epstein & Lee, 2004). The role of the management accountants have been changing and advancing
Currently, Berry Ltd is using the traditional absorption costing system in which the organization uses single allocation base (machine hours). However, this mechanism has failed to generate accurate costing information relating to the products. Based on this premise,
the proponents of ABC, it is justifiable to allocate overheads to production units based on cost drivers, which take into account the costs absorbed by individual products as opposed to using an absorption rate that allocates costs to products using a pre-determined figure
Therefore, each product cost will be directly proportional to the activities done in production (Baker 1998). Unlike the traditional method where cost share accumulated within departments, then allocated arbitrarily to products and services or customers.
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