BUS 5110- Managerial Accounting- Written Assignment Unit 2 #9 PDF

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BUS 5110: Managerial Accounting- Written Assignment Unit 2

The Cost Accounting Method for Wet Suit World Company Written Assignment Unit 2 Term 4 2020 BUS 5111 University of the People April 2020

BUS 5110: Managerial Accounting- Written Assignment Unit 2

Written Assignment Submit a paper which is 2-3 pages in length, exclusive of the reference page. The paper should be double spaced in Times New Roman (or its equivalent) font, which is no greater than 12 points in size. The paper should cite at least three sources in APA format. 

In this paper, please discuss the three costing methods of job order costing, process costing, and activity-based costing.



Define each method and explain when it is best suited to be used.



Compare and contrast the methods and consider their bene ts and shortfalls.



Use the information provided to propose which cost method should be used to allocate costs.

Wet Suit World is a company that manufactures wet suits for use with water sports such as snorkeling and scuba diving. The suits are made in sizes small through 3x extra-large with levels of insulation layers of 2 millimeters, 5 millimeters, and 7 millimeters. They come in black with the Wet Suit World logo imprinted across the chest. The materials are the same for all of the suits, though they vary in thickness. All suits undergo the same production and quality inspection processes. There is no one “correct” answer to the proposed cost allocation method as long as the answer is well supported based on the week’s learning. Superior papers will include the following when responding to the assignment question: 

Define the three costing methods.



Explain when each is most appropriately used.

BUS 5110: Managerial Accounting- Written Assignment Unit 2



Compare and contrast the methods, considering both benefits and shortfalls.



Provide a well-supported proposal for the cost method Wet Suit World should use.

Be sure to use APA formatting in your paper. Purdue University’s Online Writing LAB (OWL) is a free website that provides excellent information and resources for understanding and using the APA format and style. The OWL website can be accessed here: http://owl.english.purdue.edu/owl/resource/560/01/ This assignment will be assessed using the BUS 5110 Unit 2 Written Assignment rubric.

Introduction :

BUS 5110: Managerial Accounting- Written Assignment Unit 2

Costs are accumulated and accounted for across different types of businesses thru three cost methods: 1. Job Order Costing: The job order cost system is used when products are made based on specific customer orders (J. Lewis 1984). Each product produced is considered a job. Job Order Costing is a form of cost for a specific order that is adopted to perform the work according to the client's specifications. The production process depends on the number of orders received from customers. The manufactured goods are intended to be delivered immediately once completed in all respect. The job order cost system must capture and track by job the costs of producing each job, which includes materials, labor, and overhead in a manufacturing environment. The purpose of job costing is to compare the job cost with the estimated cost to indicate whether estimation is deficient and the cost incurred is excessive. It helps as an analysis to monitor and track remedial action to improve efficiency and subsequently facilitate the revision of estimates. Job order costing system is suited and widely used in manufacturing as well as Service Industries, Furnitures Making, Construction, Architecture, Painting etc. 2. Process Costing: A process costing system is used by companies that produce similar or identical units of product in batches employing a consistent process. Each department or production process or batch process tracks its direct material and direct labor costs as well as the number of units in production. The actual cost to produce each unit through a process costing system varies, but the average result is an adequate determination of the cost for each manufactured unit.

BUS 5110: Managerial Accounting- Written Assignment Unit 2

Processing cost is suited and used is soft drinks, petroleum products, or even furniture such as chairs, assuming that the company makes batches of the same item, instead of customizing final products for individual customers. The cost flows in a process costing system are similar to the cost flows in a job costing system. The primary difference between the two costing methods is that a process costing system assigns product costs—direct materials, direct labor, and manufacturing overhead—to each production department (or process) rather than to each job. Each production department has its own work-in-process inventory account when using process costing. The costing system used typically depends on whether the company can most efficiently and economically trace the costs to the job (favoring job order costing system) or to the production department or batch (favoring a process costing system). 3. Activity-Based Costing (ABC): is a costing method that assigns overhead and indirect costs to related products and services. This accounting method of costing recognizes the relationship between costs, overhead activities, and manufactured products, assigning indirect costs to products less arbitrarily than traditional costing methods. However, some indirect costs, such as management and office staff salaries, are difficult to assign to a product (W.Kenton, 2020). ABC is totally different concept from a job order costing and process costing as in activity based costing the cost is calculated on the basis of the activity that what number of the activities and on the basis of classification of the activities.

BUS 5110: Managerial Accounting- Written Assignment Unit 2

Comparison: Job Costing

Process Costing

Activity Based Costing

Based on The

Based on Activities

Continuity of process

Involved

Based on Order Low Production

High Production

Volume

Volume

work for both Differences

different and similar Products

any type of Products

varied Products Unit cost Unit cost calculated by Unit cost calculated by calculated by department

Activity

item/job Suitable for cost Average cost can be Accurate cost calculation

contractors and easily determined Consultant trace the costs to the trace the costs to

production department trace the cost to activities Benefits

the job or batch Each production department has its own Activity are monitored cost for each job work-in-process

and coted accordingly

inventory account Job Costing vary cost vary and may not

not easy to implement and

suit for all purposes

costly

Do not give any

more Technical work

from contrator to Shortfalls another More Manual

BUS 5110: Managerial Accounting- Written Assignment Unit 2

precise estimate if Work Involved

single process and

required

different products

Conclusion: Each of the three costing methods has its own advantages and limitations, neither can replace the other nor fulfill the gaps in the other. Considering what described above, Process Costing is suitable for Wet Suit World Company as Material is same for all suits and all suits undergo the same production and quality inspection processes.

References: De Ronald J. Lewis, Activity-based Models for Cost Management Systems (Pages 10-13) Lumen, Accounting for Managers, https://courses.lumenlearning.com/acctmgrs/chapter/4-2 product-cost-flows-in-a-process-costing-system/ Openstax, Principles of Accounting, Volume 2: Managerial Accounting, 27.

BUS 5110: Managerial Accounting- Written Assignment Unit 2...