Product Costing Methods: Strengths and Weaknesses

Product Costing Methods: Strengths and Weaknesses Todays competitive environment requires manufacturers to know their costs for competing globally. A top notch costing system is one of the most powerful information tools a management can have; especially which provide a clear picture of the activities that are driving costs and the ways individual products and processes consumes resource. We can use costs in distinct ways. Product costing is used for strategic decision making. 1 PRODUCT COSTING Product costing system is a set of procedures that accounts for an organizations product costs and provides timely and accurate unit cost information for pricing, planning and control, inventory valuation and financial statement preparation. An organization should be concerned about product costing and their firms product costing system. Use of an appropriate product costing system helps allocation of indirect costs and helps to use resources in a productive way. It is used to determine the market profit margins and also focus on sales function, customers markets and setting prices. 1. A The most common systems of product costing are: Job order costing Job order costing allocates costs to products that are readily identified by individual units or batches of which requires varying degrees of attention and skill. It is extensively used in service industries, hospitals, law firms, movie studio, accounting firms, etc. It is more complex when companies sell many different products and services. Process costing Process costing allocates costs to products by averaging costs over large number of nearly identical products. Since every unit is essentially the same, each unit receives the same manufacturing input as every other unit. Refineries, paper mills and food processing companies use process costing. A complication arising in process costing is that manufacturing of not all units may be completed at the balance sheet date. 1. B Strengths of Product Costing Useful for making judgments about management related profitability and performance, which often leads to decisions about resource allocation, shifting money from unrewarding activities to profitable activities and improve products cost performance. Helps for valuation of inventories for financial reporting purposes. Stock can be valued at the lower of cost or net realizable value under the prudence principle and the problems of allocating overheads to products for financial reporting do not arise. Plays an important role in complex pricing decision process and cost control. Cost based pricing is particularly true for customized products which do not have readily available market price. Managers often use product cost for planning and controlling the costs. For this purpose managers mainly focus on the product cost, although the scope of the analysis can be extended to include product costs from other areas of the value chain. Helps the organizations to find out the cost associated to each product .That enables to selling profitable products. This will help to avoid the use of non profitable products, and maximize profits. It gives an understanding of each products contribution to the bottom line. 1. C Weaknesses of Product Costing There are few limitations faced by the organizations by using the product costing systems they are: This costing system was developed during a period when 80% cost were related to labour, so it focused on direct labour cost. It is related to the benefits of a change in process or method reduction in direct labour. Only limited service organizations used full product costs for pricing decisions. In service organizations inventory valuation is not a major issue because there is not much to store. Planning and controlling of service organizations done through responsibility centers linked to functional activities rather than product or services. It assumed that the factory is an isolated entity and provide no indication of the impact of change in the factory on the rest of the organization. 2 Conventional costing Conventional costing produces inventory values which consist of variable costs and such fixed costs which commensurate with the level of production at which the inventories are produced. Conventional cost can aid in controlling cost as efficiently as direct costing. When conventional cost is employed on the books, the variable and fixed costs must be assembled and arranged to fit the analysis made out side the records. A limitation for conventional system is that conventional costs develop under absorbed or over absorbed manufacturing expenses which are not understood by management. (Convertibility of Direct and Conventional Costing; Joseph A. Mauriello; National Association of Cost Accountants. NACA Bulletin (pre-1986); Mar 1954; 35.7) 3 Traditional Costing Traditional costing is among the oldest used methods of costing systems. In traditional costing, the manager or the management assigns direct labour, direct material and overheads to each unit of production. In this case, the overheads are not broken down by activity but based on certain volume related factors such as direct machine hours, direct labour hour etc. (At what overhead level does activity based costing pay off? Robert J Vokurka; Rhonda R Lummus Production and Inventory Management Journal; First Quarter 2001; 42, 1; ABI/INFORM Global pg. 40) 3. A Going against the odds Although the introduction of ABC was supposed to be the remedy for the short-comings of Traditional Costing, the Japanese managers still use traditional costing measures and are able to reduce costs and increase their market share. Traditional costing uses a very powerful set of tools and methods and may be much mightier than written deficient by the simplistic textbooks. (Why the Japanese can do without ABC Patel, Ashok, Russell, David. Certified Accountant. Cork: Nov 1994. pg. 64) 3. B Advantages of Traditional costing system Easy to understand and it is widely used In a firm with only one product line, the final cost will be the same as if ABC were used It is a convenient base for the assignment of manufacturing overheads (with direct labour as a significant portion of the product cost) Easy to depict a diagram representing the flow of product cost (ABC: Revisiting the Basics) 3. C Disadvantages of Traditional Costing In most of todays business scenario, the information that a management needs for decision making are not being satisfactorily provided The averaging of the overall costs to the entire product line may result in some products carrying a major proportion of the overheads than it actually should. This in turn will affect the decision making related the product such as marketing emphasis, pricing, cost control etc Since being a volume driven cost allocation, the entire process of costing is based on the manufacturing cost while the other factors of costs (performance driven) such as Research and Development, marketing etc are averaged across all the products. (ABC: Revisiting the Basics) 4 Activity Based Costing Activity-based costing was introduced about 15 years ago and implemented initially by large manufacturing companies since it is proven to show as more beneficial in larger firms that have a diverse mix of products or services. ABC is a system for assigning costs to products based on the activities they require. These activities are those regular actions performed inside a company. Eg: asking a customer invoice related questions. In this way an organization can establish the true cost of its individual products and services for the purposes of identifying and eliminating those which are unprofitable and lowering the prices of those which are overpriced. It is generally used as a tool for understanding product and customer cost and profitability. As such, ABC has predominantly been used to support strategic decisions such as pricing, outsourcing and identification and measurement of process improvement initiatives. Cost centre, cost allocation, fixed cost, variable cost, cost drivers are the methodologies used in activity based costing. 4. A Strengths It helps to identify costs of individual activities, based on their use of resources Identify most and least profitable customers, products and channels through its methodologies. It helps to control the cost at individual level as well as on departmental levels. The cost of all activities associated with a product or service can be accurately determined before it is launched, so it helps in pricing, future product planning etc. Expands the cost of producing and selling a product so that better decision making information is available. Uses the technologies available to track costs in todays manufacturing environment. 4. B Limitations Some overhead cost is difficult to assign to products and customers, such as the chief executives salary. ABC is time consuming, if all activities are to be costed. It may be difficult to set up and establish ABC if an organization is using more traditional accounting methodologies. ABC identifies product costing better in the long run, but may not be too helpful in day-to-day decision-making. 5 Conclusion Product costing suffers from some set backs but overall it is an effective tool that helps organization in predicting and minimising costs involved in manufacturing a product as well as in providing management with relevant information for strategic decision making process that have a long term impact on the profitability of the firm. And though many experts suggest the use of marginal costing in decision making the modern organization concentrate on product costs. Traditional costing systems fail to meet the managements decision making requirements in the modern organization. But the introduction of ABC had taken out this shortcoming to a minimum level and has made it much easier for the cost control and help managers take wise decisions based on their numbers. This is where product costing systems make an impact and prove to be useful and more importantly a necessity.

9-11 Essay

The horrific after math of the tragedy event of 9-11 still impacts the United States government and the life of the citizens living in the United States today. There are still many concerns and question about what can the United States do to help prevent a terror event from taking place again. The United States has made some massive changes in it’s security since 9-11. However, even with all the new laws and regulations some believe that there is still a need for more laws. More laws and regulations that would allow law enforcement and the government to maintain or increase the liberties they have enjoyed prior to 9-11. Today the Unites States has made an enormous improvement in technology to make it safer. With all the new technology improvements since 9-11 the United States is safer, but not as safe as it could be. Citizens living in this county know that in order to make more improvement in our homeland security, counterterrorism, or any other aspect it will require new technology. But new technology doesn’t come cheap; there is a price to pay that isn’t of monetary value, less privacy for citizens. Is the invasion of some of your privacy worth giving up for protection? What can be more important than the safety of your life? One of the marvelous improvements of technology that took place preceding the event of 9-11 was airport security. These improvements were made for the better and have yield good result. With this being said, there is still controversy surrounding the changes made, like the invasion of privacy. Transportation Security Administration performs frisk and pat downs at airports, which do not violate an individual’s constitutional rights, but, there is controversy about how far Transportation Security Administration should be able to go. Today people are told to do things like take their shoes off at airports, (add another thing security does and then put a comma with etc. after it to end the sentence) These still do not violate your constitutional rights. Would you rather have someone take off their shoes or bring a bomb or weapon onto a plane? Airport security raises a lot of concern about, â€Å"how far is too far.† There was an incident with a 90 year old lady at an airport that was ask to take off her diaper. The reason that she was asked was because it was wet and it prevented her from being search properly. Once again the thing that we are overlooking is that the matter of safety overrides everything else. Or what about in 2009, when Umar Farouk Abdulmutallab was found with plastic explosives hidden in his underwear at an airport. Without the new searches and frisk and pad down procedures, the plastic bomb would have been overlooked. It’s obvious that new enforcement of laws have slowed down some of the terrorism acts but there is still much more that still needs to be done. These are just some of the reasons why our government has invested 100s of millions of dollars to speed up technology machines and equipment. One of the types of data that the government gathers about citizens are cell phone records. The National Security Agency collected the phone records of millions of Verizon customers. They ordered that, â€Å"Verizon must provide the phone numbers of both parties on a call, location data, unique identifiers and the time and duration of calls. This applies to calls both within the United States and placed to an international number,† (Welsh, 2013). This is still not an invasion of privacy or constitutional rights. Let’s take some time out to think here, what could our government be doing with this information? If anything, it’s something positive; why won’t the citizens of this country trust their government? The collection of phone numbers is for our safety. We as people should have a right to know if our neighbor is plotting a terrorist attack. If you have nothing to hide, then why would you mind giving up that information to the government? What harm coul d come from phone records. The United States government is something that every citizen in this country should put his or her trust into. With the trust and support of the people we as a whole could worry less about things like bomb threats at races, shootings in school, or shootings at movie theaters. Another type of data that is collected by our government is the gathering of online data of person’s computers records. â€Å"The Internet Surveillance Program collects data from online providers including e-mail, chat services, videos, photos, stored data, file transfers, video conferencing and  log-ins,† (Savage, 2013). Even with our government monitoring these events, which take place every day in every person’s life living in America, it still remains an issue of violating privacy. Once again its comes down to that phase if you have nothing to hide let us in†¦.if you’re a good American. I’m pretty sure the government is not listening or concerned about the foolish meaningless stuff. They can less about who individuals are dating or hanging out with. The Internet Surveillance Program was establishes to catch bad guys and prevent faulty events from taking place. The information like emails, chat service, photos, etc. is private information and should remain confidential. Which the information will, our government is not going to expose this information to the public unless there is some type of suspicion or probable cause. But, even before the situation escalates to that point there would probably be an intensive investigation. We have either seen on the news or read somewhere in a paper about the Federal Bureau Investigation, National Security Agency, or one of the many other organizations being abusive to citizens. We are human, sometimes we are going to make mistakes, but nobody wants to be accused of a crime. When the government holds someone in custody then later finds out that they are innocent, the government should find some way to compensate them for their cooperation and our mistake of false accusations. I believe that we have not left the door open to wide, in my opinion, we should welcome the government into our homes. We should show our government that we are law abiding citizens and that we appreciate what they do to help maintain peace, allowing everyone to feel safer. As far as our liberty goes, we must allow some of it to erode in order to live a safer life. Our founding fathers wrote our rights, such as liberty, many years ago. But since those times, look at how things have evolved over th e past years, such as social media, cell phones, Facebook, etc. So we must also allow our laws to evolve in order to prevent conflicts, such as 9-11. When the next big incident occurs the point of views made in this argument are some issues that will once again be evaluated. Who knows when our government will take action and do what is needed in order to maintain safety and peace. As a citizen of the United States, I am willing to give up  some of my individual rights to ensure that tragic events such as 9-11 do not occur again. The top priority should be the protection and safety of every individual living in the Unites States.

Christian-Only Hiring Policy Essay

Case Study: Matthew is planning to open a manufacturing facility. He is considering a â€Å"Christian-only† hiring policy whereby he would determine to hire only professing, evangelical Christians to work in the facility. He asks you for your advice on the following questions: 1. Would such a policy be legal? If so, under what terms and what might the restrictions be? 2. From a Great Commission perspective, would this policy be advisable? 3. How would your answers change, if at all, if they planned to open a Christian school rather than a manufacturing facility? Matthew is planning to open a manufacturing facility and is considering a â€Å"Christian-only† hiring policy. The only way that this policy would be legal is if the manufacturing facility was considered to be a non-profit organization. A non-profit organization is an organization that uses surplus revenues to achieve its goals rather than distributing them as profit or dividends. The extent to which a non-profit organization can generate surplus revenues may be constrained or use of surplus revenues may be restricted. If this manufacturing facility was deemed to be a non-profit organization, then the organization would be exempt from the Civil Rights Act and would be able to implement their â€Å"Christian-only† hiring policy without facing charges down the road of discrimination. Due to the fact that a manufacturing facility would be unable to be classified as a non-profit organization because their purpose is usually to distribute its products for profit, then my adv ice would be that this policy would not be advisable for Matthew to use a â€Å"Christian-only† hiring policy. Using this policy would cause people to be discriminated against due to religious preference, and this is clearly illegal in the United States. If Matthew was planning to open a Christian school rather than a manufacturing facility, my answer would still be that it is illegal to discriminate in a for-profit organization. There are times when a faith-based humanitarian organization has prevailed over the lawsuits brought against them for discrimination due to religious preference, however, I do not advise toying with the gray area of the laws. I would advise Matthew that if he intends to open his manufacturing facility, it is not legal and not advisable to implement his â€Å"Christian-only† hiring policy.

Mckinstry Advertising Agency - 1491 Words

McKinstry Advertising Agency You are the president of the McKinstry Advertising Agency, a medium sized firm that specializes in preparing the marketing strategies, performing the market research studies, arranging the distribution channels, and designing the advertising and promotional materials for industrial companies that have developed †off-shoot† consumer products. You obviously serve a very specific niche. Your clients are industrial companies- that is, they sell primarily to other manufacturing firms and government agencies- that have developed- as unintended outcomes of their Ramp;D programs- products for the retail trade. Dow Chemical Company, while not a client of your agency, is an almost ideal example of this type of firm.†¦show more content†¦In summary, it cannot be said that exact cause of most severe traffic accidents are known with certainty but it is believed that speeding and drinking, jointly or separately, play some role in the events that lead up to those accidents. Als o to blame, in many instances, are the design of the highway, the condition of the weather, the maintenance of the vehicle, the time of the day (many severe accidents occur at dusk, with poor lighting and tired drivers), and the presence of radar detectors. A study by the Ohio State Police found that radar detectors were present in at least one of the vehicles involved in 69% of all severe traffic accidents on the highways of that state in 2005. Studies in other states have confirmed that finding, with some estimates of the relationship running as high as 75%. The use of radar detectors is illegal in many if not most states, but neither the manufacturing nor the marketing of the units has ever been banned by the federal government which, of course, is the sole authority which could regulate their interstate trade. The U.S. constitution forbids any state from restricting† imports† from any other state. Currently, therefore, there often occur an unusual situation in which the use if the radar detector sets may be illegal within a given state, but the sale of those sets is not illegal and cannot be prohibited within that state. The manufacture and marketing of radar detectors was expanding industry,