Job-ordered Costing System vs. a Processing Costing System for the EEC

The week four individual paper addresses the implementation of Activity Based Costing (ABC) by Super Bakery, Inc., a virtual corporation founded by Franco Harris. Specifically, management strategies, the reasoning behind an ABC system, and the alternatives of a job order cost system or a process order cost system are assessed for this enterprise.

According to Epstein and Buhovac, (2014), costing system is a process designed to monitor the costs incurred in a certain business. Costing systems are meant to advise the management on how to choose the most appropriate course of action with cost efficiency and capability. According to Cardinaels and Labro (2009) costing system provides detailed cost information needed by management needs to control current operations with the aim of improving the future. Below are some of the costing systems that are common to many organizations (Epstein & Buhovac, 2014).

The week four individual paper addresses the implementation of Activity Based Costing (ABC) by Super Bakery, Inc., a virtual corporation founded by Franco Harris. Specifically, management strategies, the reasoning behind an ABC system, and the alternatives of a job order cost system or a process order cost system are assessed for this enterprise.

“Companies can choose to use the accounting job order costing method when they have a single product line or numerous products to manufacture. However, it is less costly and less time-consuming if they elect to use process costing when calculating the manufacturing of a single product line. With similarities

a service department’s costs have been allocated, costs are not reallocated back to it under

The costing approach should be based on per Transaction Basis rather than on per kit or per pound basis because of the following reasons:

In order to grasp the concepts of efficiency and rate variance we need to first understand how direct labor standards costing system works. Direct labor standards include quantity standards and price standard. Labor standard expressed in terms of labor hour that includes hourly wages, employee taxes, and fringe benefits. Whereas price standard expressed in terms of labor rate which should include personal needs of employees, clean up, allowance for breaks and machine breakdown.

1. Define and explain the meaning of a predetermined manufacturing overhead rate that is applied in a job-order costing system.

Would factory security and assembly activities be best classified at an appliance manufacturing plant as unit-level, batch-level, product-level, or organization-sustaining?

INTRODUCTION Businesses – from manufacturing, merchandising and service industries alike – take careful consideration in the analysis of their costing systems in order to be able to set up competitive prices in the market. Misallocation of costs may lead to incorrect price estimates, continuous production of unprofitable products, and ineffective processing schedules. In this case study, we will discuss the costing methods which Zauner Ornaments have used or is currently using and, in conclusion, be able to distinguish the advantages and disadvantages of each costing method. CASE CONTEXT The case seeks to assist Zauner’s comptroller, Yu Chia-yi, in determining the best costing method for their overhead costs. In addition we also aim to

The current method of apportioning production overheads based on direct labour hours can be described as a traditional approach to product costing. In a manufacturing company’s financial statements, each item produced must be allocated some of the production overheads to make the statements compliant. Sometimes the individual costs of these items can be calculated incorrectly based on overall production overhead and the system of allocating in place, however the overall financial statement can still be accurate. This traditional method of allocating the production

ent activity-based cost pools with respect to their classifications. In the second stage, using a series of costdriver-based rates, the pooled costs are allocated to product lines. Gary Cokins argued that, compared to the two-stage model, a traditional costing system is like a “checkbook” where one can read the total amount spent but can never know the purpose and results of each check.2 Traditional cost systems are always employee payroll related, which hinders a manager’s ability to judge and improve employees’ activities and performance. Furthermore, the payroll-related costs do not indicate the interaction and relationships between one activity and others or products and customer services. Managers will not be able to identify which events cause activity costs to vary. Based on managers’ views, however, an organization’s activity costs could be the most controllable part that managers can influence. Nonetheless, without knowing the costs’ drivers, managers are virtually unable to organize a company’s production costs efficiently. In contrast, ABC concentrates on activities involved in the work process that help managers operate a business or an organization. “ABC/M is work-centric, whereas the general ledger (traditional costing system) is transaction-centric.”3 Nonetheless, both systems have their points: The traditional

Under the new cost system, two broad sources of costs were identified: manufacturing and SM&A. All costs within these categories were reclassified as either volume driven or order driven. Hence, four cost pools were set up.

Which method of determining product costs, job-order costing or process costing, would be more appropriate in each of the following situations?

During the 1980s the limitations of traditional product costing systems began to be widely publicised. These systems were designed decades ago when most companies manufactured a narrow range of products, and direct labour and materials were the dominant factory costs. Overhead costs were relatively small, and the distortions arising from inappropriate overhead allocations were not significant. Information processing costs were high, and it was therefore difficult to justify more sophisticated overhead allocation methods.