Absorption Costing System Absorption costing is a managerial accounting cost method where it gathers all of the manufacturing expenses and allocate them to the actual product. In other words, it means that all the expenses incurred with the production, such as all the raw materials that is required to make the product, the direct labor needed in producing the product and both variable and fixed overhead costs, are all involved in the final cost of the product. For example, think about it like this, if Panasonic used absorption costing systems when they are setting a value for their hair dryer, the cost of the product would comprise the following: the raw materials needed to manufacture the hair dryer, the wages paid to employees to produce …show more content…
Normally when the volume of output increases, it results in the reduction of the unit cost and when the output reduces this results in an increase cost per unit, this is due to presence of fixed expenses. It is not practical to consider It isn't polite to consider a manager responsible for costs over which he has no control of. When he discovers that he can't control some portion of the expenses which he is entrusted with, his sense of responsibility for controlling his direct cost some way or another may appear to diminish. So, this becomes difficult for comparison and control of …show more content…
In other words, Just in time inventory refers to an inventory management system where inventory are readily available at the time when its needed in the production process to meet the demand but not to a point of excess where it is need to stockpile the extra inventory. Inventory maintenance takes time and it could turn to be expensive, this is what motivates industries to implement Just in Time programs. For example, to understand better, lets assume that Company A is a small car manufacturer, On Wednesdays they assemble the car bumpers, and on Fridays they set the windshields. If the company is using just in time inventory method then the company might have the parts delivered exactly one day prior to the requirement. So, the bumper would arrive on the Tuesday and the windshields on Thursday. Features of JIT: Some of the key features of this system are that only few reliable vendors exist, who can deliver high quality raw materials within a short period that to in perfect condition. Secondly, since there will not be any stockpiling, the transportation cost that is involved in the movement of inventory from the storage unit to the manufacturing site can be avoided. And the other feature is that the production cycle gets shorter, the reason being disturbance due to delays
These costs can be both personnel and non-personnel and both direct and
Taking short periods, our system allows us to get to market faster and will have more signs, but also will have many false signals. If, on the other hand, if we choose longer periods, we will have fewer signs and we will come later, but our signals will be more accurate. In the nest chapters, we will discuss various technical indicators and their impact on
a) Accounting policies and comparison with international accounting standards: Net sales, cost of sales, gross margin, expense, operating income, interest income, taxes, cash, assets, long-term and short-term liabilities, Properties, common stock dividends, total shareholder’s equity are all the accounting policies. All of those and other financial data be used in preparing the Macy’s financial reports. In the section of the common stock. The company’s Board of Directors has the discretion of the declaration and payment of future dividends.
Wilkerson is currently using the traditional costing system. “Companies that use the traditional costing method assume that the volume metric is the underlying driver of manufacturing overhead cost.” Traditional product costing was established when direct material costs and direct labor costs accounted for the bulk of product costs incurred inside a firm. In the Wilkerson company, materials and labor costs are centered around the prices of materials and labor rates.
It is imperative to understand the current conditions of what materials are candidates for return, compared to the performance level of returns achieved each day. The delta between the identified material returns and the actual returns will provide information for goal setting. Additionally, with the transfer of raw materials into the warehouse, there must be a transaction to receive it into inventory and distribute it to the appropriate location. At that point, the process will be complete for the appropriate accounting of the materials, creating availability for consumption at the next production demand. The data collected will be influential in developing a robust procedure for each assembly line to follow in a consistent manner.
Employees’ output is subpar and does not conform to the expected or stipulated levels. This has adverse effects on downstream automakers because they must contend with delays in the supply of side mirrors. It also results in missed deadlines, which erodes customers’ confidence in the organization. Sluggishness among employees also results in a general rise in overheads (Beer & Collins, 2008). For example, the organization must airlift completed parts to customers to shorten delivery times in the face of production delays.
Technology and optimization ensures that the supply curve moves towards the left. 3. NUMBER OF
This ensures quality of product and “smooth” running of the
Ultimately product velocity and production, in general could be consistently down the flow
Solution : Introduction: A budget is an estimation of particular commodity, quantity etc. It can be prepared for any number of days but generally it is prepared wither for a year or quarter... A budget may or may not become the actual outcome.
Also, various methods of controlling costs such as standard costing system and flexible budgets have close relation with the variable costing system, in turn making it easy to use those methods. 3. Companies using variable costing system are able to prepare income statement in contribution margin format that provides necessary information for cost volume profit (CVP) analysis. On the flip side, this data cannot be directly obtained from a traditional income statement prepared under absorption costing
Based on this case the cost driver is to properly distribute the direct cost among the different divisions. Dr. Julian would like to control her departments costs by having them distributed fairly among the divisions without affecting the hospital’s reimbursement/revenue. Carroll University Hospital is currently using the standard costing unit, which is based on the cost of bed/day for inpatients. Currently the present cost accounting system that is being used at CUH takes the total direct cost of the departments, then allocates the indirect costs and distributes it among the departments evenly regardless of the actual resources being used in those departments, and without considering that there may be some patients in these divisions that may require more resources than others, this method does not seem to recognize the different activities,
Situation: Concerns and reports about the congestion at shipping dock. Scope: It has been brought to my attention that at Hotstone Tires docks, congestion is a major issue, as pallets of materials has been chosen to be transported with the forklift to tractor outbound tractor trailer. This problem has made the process tedious for stock picking employees, and employees having no choice but no options but to wait their turn, and also go long distance to the ware house to pick up other order to process and put products on the trucks. Since this is not efficient and is potentially slowing down the work process a new system will be implemented to control the smooth flow of traffic, which will enhance and benefit all parties involved in the work
For HomeHelp, this would be a benefit, as it will be having more working capital available for it. In the short term, both the companies would have to spend money on the technology to implement the time-based logistics. In the long term, there would be costs associated with the time-based responsive logistics on an ongoing basis as it results in frequent smaller shipments rather than consolidated larger shipments. It also entails costs of regular upgradation of technology needed. This could result in an increase in costs in the short term and long term for both companies, which have to be balanced with the advantages gained (Donald J. Bowersox, 2002, p. 40).
The NB2E aims at enabling the company to make their products 100% available within 24 hours in order to better respond to the demand, reduce inventory (and client’s inventory as well) and reduce manufacturing cycle times (average lead time was then 2.5 days). To so New Balance has to move from a batch production to a pair-to-pair flow and reorganize production process and work in progress to get a more continuous flow. These objectives are coherent with New Balance’s strategy and improves the company’s flexibility. They are able to respond faster to delivery and save costs but also help their clients (retailers) to reduce their inventories as well and quickly respond to the market.