Case Study: Fertilizer Company

If we own a popcorn cart vending business, it may not be too difficult for us to determine the product cost or how much price we want to charge to the costumer. We just need to calculate the product cost by adding together total material cost, labor cost, and overhead cost (taxes, rent, utilities, etc.) then divide it by how many popcorns we make in a period of time, per month for example (Keythman, n.d.). If we are too lazy to calculate that, we would just need popcorn from the movie theatre for our price per pack benchmark. After that, we will see how the business going on and adjust the strategy along the way.

However, in a bigger business, product cost calculation is more complex and is very important to run the business in the long

This is due to the extent of job would vary from one to another. For example, a job to bust your cockroaches in your kitchen would different to the job to catch mice in a grocery store. The customer will be charged mainly based on the number of manpower who execute the job, the difficulty of the treatment, and the amount of material or chemical it uses. 2. Fertilizer Company use Process costing

Fertilizer Company, like most other chemical plants, produces a homogenous product. Its manufacturing is about processing the natural gases and catalyst which eventually formed into solid fertilizer granule. Due to this nature, process costing is likely used by Fertilizer Company. According to Vitez (n.d.), process costing is an easier system to use when costing homogenous products compared to other cost allocation methods. Aside from the raw materials, costs of maintaining production facility mainly contribute to the total cost of running the business. 3. ABC costing used by car manufacturing

The place is usually a complex system where high-value capital equipment utilized differently for different car models. Certainly, the energy consumption will also vary depending on the models it’s processed. For example, the timing required for robotic machine to weld the chassis of Toyota Land Cruiser may significantly be different to the one of Camry. Many car manufacturers utilize ABC Costing for more detail analysis to find out the true cost of each product. ABC costing is used when the more accurate cost information is required (“What benefits does ABC provide”,