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Worplestrop Case Study Report - Essay Example

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Worplestrop Case Study Report

Cost accounting method of accounting is employed in this to achieve the aims. In doing this planning as a measure of review is established, in this case budgets will always be developed to show the stakeholder the progress level reached. The reports produced and provided will be of utmost importance in that they are employed in the evaluation of the performance of the business in place and as well to motivate the workers. Total production costs in any industry are the total cost incurred in both manufacturing and service provision. In the production process, various cost elements are normally involved: - These are material, labor and overhead costs including other relevant expenses (Polimeni, 2000). When all these costs are summed up, we arrive at the production cost of a product. The determination of material and labor cost is easy and quite simple since such costs are direct. While material costs are read directly from the receipts, labor costs are determined from the payroll sheets of the employees (Davis, 2005). The payroll indicates both the salaries and the expenses of the company employees in all the ranks. The challenging aspect of cost to determine involves those for the overhead and other expenses, the determination and valuation has posed a serious challenge to cost accountants (Polimeni, 2000). They have though employed various cost accounting methods to allocate such costs to the products to help in the product cost determination. Cost of products are fundamental for decision making purposes hence the need to find for the means of costing products. The following methods have therefore been devised to help determine costs of products:- First, cost of a product can be calculated using the marginal costing system (Davis, 2005). In determining costs using this system, variable costs are given a major weight to help in valuing products for decision making. Both the fixed and sunk costs are not integrated in this case since they do not affect the future decisions made given they are already incurred in the past. The reports formed based on this measure are only for use internally and not for external decision making purposes. Secondly, absorption or total costing method can also be used to value and determine the costs of products. Here as opposed to marginal costing, all the costs are summed up including the fixed costs and the sunk overhead costs. In the process of manufacturing, the products all these costs were incurred hence deemed valuable in product cost determination (Davis, 2005). This method is the mostly preferred even when determining selling prices of goods and services since it entails all the costs incurred and would give a fair selling price. The method aids the organization achieve a desired profit margin as they simply add it up on the selling price set. Additionally, activity based costing can be used to determine costs as well. This form of costing is used in the allocation of overheads, which are in turn summed up together with the variable costs to lead us to the cost of the product. Here, various cost drivers are use to allocate the overheads to their respective cost centers hence the method is important in charging costs to their respective activities. With decisions involving activities that should be done and those that need to be done away with in an organization, this method has been instrumental for managers of manufacturing companies (Davis, 2005). This realizes effectiveness and efficiency in an organization by the management through elimination and replacement of non-useful activities in an organization. Lastly, throughout costing can also be employed in cost determinatio ...Show more

Summary

Profit oriented businesses have a major task of production cost management for them to realize a maximization in their profitability and shareholders wealth. Therefore, cost determination is of fundamental in manufacturing firms and they need to employ various costing methods in order to reduce the costs…
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Worplestrop Case Study Report essay example
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