Table of Contents
- Price for an Essay
- 2. Cost of Goods Manufactured Statement for the Quarter Ended
- Total cost of goods manufactured- 328786.4
- Cost of Goods Sold Statement for the Quarter-Ended
- Income Statement for the Quarter Ended
- To: CEO of Malasipina-Buns Bakery
- From: Accounting analyst
- Date: 16th October 2012
- Advantages of the ABC system
- Related Free Informative Essays
The resources consumed at any corporation are also known as the company assets. These include the tangible entities such as land, buildings, and in MBB’s immediate case would refer to the inventory and employees and cash generated. The intangibles would include the trademarks, copyrights and image brought out in the packaging of the MBB’s goods (Burrow and Dlabay, 2008). In the case of inventory, MBB has cookies and bread. These function as relate to direct costs because they can be traced to the manufacturing cost. The same goes for wages for the mixers and workers can be treated as direct resources because their time for production cost is calculable at 6 dollars per hour for the packers, 8 dollars per hour for the bakers and 7.50 dollars for the mixers per hour.
On the other hand, indirect costs cannot be exclusively identified with the particular cost object. In the case of MBB, an indirect resource cost would be the salary of the factory supervisors or the managers cannot be specifically attributed to a finished product, which is a batch of cookies or bread. The same goes for the rent paid for the factory building or the machinery. This cannot be translated into unit cost per cookie, or loaf of bread.
For the purposes of CVP analysis, mixed costs should be separated and this s where the variable and fixed costs come in fixed costs relate to those factors in production that do not change. They may also not be affected by the changes in level of production for the short run. On the other hand, variable costs are ubiquitous by nature, because they range with the range in output. Referring to the case with MBB’s last quarter, charges on rent, capital leases and indirect labor would provide adequate examples of fixed variables (Drury, 2009 pp. 28). The variable costs would be the direct labor and the cost per unit for each product. Hence the variable and fixed costs are denoted as follows:
2. Cost of Goods Manufactured Statement for the Quarter Ended
In order to determine the manufacturing price of goods by MBB, we have to assume, at the beginning of the last quarter, there were a number of goods, going through various stages of production (Mowen and Hansen, 2010). In total, these almost completed units are named beginning work in process inventory. The costs that the company assigns to the work in process inventory are based on the manufacturing goods incurred in previous quarter. The overall equation should resemble that of-
- Beginning duty for inventory + total manufacturing costs = total work in process –end of duty inventory = price of manufactured goods
Raw material inventory currently= 21,098
Raw material purchase= 179,336.4Want an expert to write a paper for you Talk to an operator now
Total raw materials available for use= 200434.4
Less inventory for raw materials last quarter= 31,648
Direct materials used= 168786.4
Indirect labor overhead= 160,000
Total cost of goods manufactured- 328786.4
Cost of Goods Sold Statement for the Quarter-Ended
Price of goods sold statement reflects a company’s inventory costs. It begins with starting inventory and proceeds to add new purchases and expenses. In this case MBB will account for indirect labor overhead, the direct materials and finished inventory to the final expense section.
Beginning finished goods inventory = 13,831
Cost of goods manufactured = 328786.4
Goods available for sale = 342617.4
Less ending finished goods inventory = 0
Under-applied overhead = 160000
Modified price of goods = 502617.4
Income Statement for the Quarter Ended
The starting competed goods inventory + manufactured goods price - ending completed inventory = price of goods sold (Kimmel and Weygandt, 2009).
This would be 13,831 + 328786.4 – 10550 =332067.4
To: CEO of Malasipina-Buns Bakery
From: Accounting analyst
Date: 16th October 2012
Subject: Implementation of Activity Based Costing (ABC)
The reason for writing this memo is to bring the company to the idea of implementing the ABC or Activity Based Costing system. First and foremost this is a method of assigning costs to the products and services based on the resources they eat up. Introducing ABC to a company is, however, not an easy task. From the start all economic activities in MBB must be broken down to the discrete components (The Economist, 2009). Some companies have done this by, for example, dividing the purchasing activity into random groups such as negotiating with suppliers, issuing purchase needs, as well as handling of complaints. This may seem quite risky for some companies, thus, most experts recommend a pilot project for the large corporations. The same may also be needed in the case of Malasipina-Buns Bakery.
Some of the information needed for the ABC system may not be readily available for the purpose or may have to be recomputed specifically for the exercise.
Advantages of the ABC system
- It has a better way to understand the overhead costs that a company makes, which is advisable for MBB, when it comes to salaries, utilities and building maintenance costs.
- It also integrates the unit cost other than just the total cost
- It also enables the cost of processes, supply chains, as well as, value streams.
- The system facilitates benchmarking.
- The ABC system may produce numbers like product margins, which may be at odds with the numbers operated by the traditional costing systems. Managers are also accustomed to using traditional costing systems in running of their operations.
- The implementation of activity based costing system is a major project and may require major resources to implement. It is also costly to maintain once up and running.
The company needs the ABC system to better access the costs on products in this day and age, however, as it is at a crucial development point, it would be better to use a pilot project of implementation for a stipulated period. This is for the purposes of assessing company performance during the time integration ability with the system.