Currently the company uses standard cost accounting whereby direct material per unit is charged as an approximate instead of actual and fixed charge of overheads is included in the total cost of production i.e. on direct labour hour basis. This charge is based on historical data…
Since the costs of direct material and overheads are not determined accurately, there is a big risk that company might not produce competitive bids and unreasonably high prices are quoted to the insurance company. Therefore it is highly recommended that firstly the entity should classify accurately the costs associated with the product into fixed and variable. Secondly, actual charge is (should be) considered rather than standard costs, as it should be able to measure its actual cost of production.
It is recommended that entity should consider using marginal costing method as it will allow the management to derive more relevant & important information for the purpose of decision-making. Information such as Contribution per unit, Break Even Sales (in units & value), Net Profit per unit and total can be of significant value to the management.
In the era where companies are moving towards modern and world class business principles and reporting methodologies, there has been, since three decades, a significant debate on the validity of traditional absorption costing method in today’s decision making process. What are relevant costs when taking decisions relating to increasing the velocity of operating cycle and what are costs that are relevant solely when consideration is given to company objectives, goals and strategies? (Samford University, School of Business, Birmingham, Alabama, USA) We at William & Co. Consultants have made a feasibility study on the implications and benefits of implementing throughput accounting at BITE ME.
"Throughput Accounting provides managers with a fresh set of eyes to identify and control bottlenecks. The drum, buffer, and rope will become part of the cost accounting lexicon in the future”, says Geoffrey Garland, Controller, StacoSwitch, Inc. (Steven Bragg).
Throughput Accounting (TA) is a comprehensive management accounting approach which provides decision support information to managers ...
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4 Pages(1000 words)Case Study
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