Week 2 5110 - it is a paper that includes all three assignments of the second week of the PDF

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it is a paper that includes all three assignments of the second week of the managerial accounting course....

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Introduction The major distinction between job costing and process costing is the variation in determining the ultimate cost of the product/services delivered (Bragg, 2017). Job costing is primarily used to monitor and cost individual units or groups of units linked to a specific job, whereas process costing is typically used to plan and record all costs associated with the manufacturing of a product in a specific production cycle/run, which typically involves high volume production. While job costing and process costing adhere to traditional costing approaches that focus on the total cost of the product, another approach to costing is activity-based costing, which focuses on the costs of activities related with producing the product (Johnson, n.d.). Costing Methods Columbia Pictures Inc., a film production firm, is an example of job order costs. This firm can generate a cost sheet for each film. The direct material cost in this scenario might include clothes, sound-check equipment, cameras, and so on, while the labor cost would comprise the salaries of the actors, crew, and so on, with the overhead cost being the expense of utilities and the upkeep of the filming sites/locations, and so on. Companies that generate unique goods or jobs, such as Columbia Pictures, would benefit more from a job costing system than process or ABC costing. (Saylor Academy, 2002) L'Oréal S.A, one of the world's top cosmetic corporations, on the other hand, would employ process costs. The work-in-progress in L’Oréal’s factory begins with the first step, which is combining the raw materials, in this scenario. The second step is bottling, which is followed by the third and final step, packaging. Companies that create comparable or equal units of product in batches using a consistent method, such as L’Oréal, might benefit from a process costing system. (Saylor Academy, 2002) Bechtel Corporation is a construction business that might profit from using ABC costing. In ABC, the expenses of production and non-production activities will be charged to the goods. Managers at Bechtel would then have to identify the activities of the divisions involved in the work-in-progress, then identify detectable and non-detectable expenses and allocate them to these tasks. The managers would next have to compute the per-activity rates and finally apply the costs to the objects. Have high expenses, such as the acquisition of construction bonds, massive

equipment and machinery, and trained employees. They also typically feature a varied range of projects or a variety of difficult service lines - for example, two warehouse building projects and two office exterior restorations of varying sizes. Using activity-based costing, project assessors and supervisors may assign costs to the appropriate products and projects, allowing the construction business to be more cost competitive on a project-by-project basis. (Wright, 2017) The first step in comparing the cost flow of these three firms is to determine which industry they are in. Columbia Pictures is a member of the film industry, L'Oréal is a member of the personal care business, and Bechtel is a member of the Engineering, Construction, and Project Management industry. However, L'Oréal's generally variable expenses include raw materials/ingredients, labor, energy, and research and development (R&D). The fixed costs would be the plant and machinery utilized to manufacture the items. Overheads include marketing, finance, and information technology, among other things. Props, cast and crew pay, costumes, and so on would be variable expenses for Columbia Pictures, whereas fixed costs would include rent, utilities, insurance, and so on. Overheads might include advertising, information technology, and so on. Finally, variable expenses for Bechtel would include oil, gas, chemicals, freight, salaries, and so on. Fixed costs would include the factories, machinery, and equipment utilized to manufacture the items. HR, finance, marketing, and so on would all have the same overhead. Conclusion Finally, in terms of product costs, all three firms are comparable. When we look at the three inventory accounts — building resources, work-in-process inventory, and completed items — we can see the difference in the costing system employed. The costing approach may change depending on what is included in these and how many departments are involved in the process.

Reference Bragg, S. (September 26, 2107). The difference between job costing and process costing. In Accounting Tools website. https://www.accountingtools.com/articles/what-is-the-difference-between-job-costing-and-processcosti.html Johnson, R. (n.d.). Traditional Costing Vs. Activity-Based Costing. https://smallbusiness.chron.com/traditional-costing-vs-activitybased-costing-33724.html Saylor Academy. (2002). Managerial Accounting. p. 200. Retrieved from: https://www.saylor.org/site/textbooks/Managerial%20Accounting.pdf Wright. T. C. (2017). What Types of Businesses Do Activity-Based Costing? AZcentral. https://yourbusiness.azcentral.com/types-businesses-activitybased-costing-28437.html

Costing Methods

University of the people

Bus 5110: Managerial Accounting

Dr. Jacent Gayle.

Nov 23, 2021

Introduction The acquisition, allocation, and analysis of cost is characterized as cost accounting. It is also a type of management accounting that tries to capture a firm's overall cost of production by measuring both variable and fixed costs at each stage of production. (Tuovila, 2021). Costing methods are often used by management to assess and recognize employees' performance, and by workers to properly manage resources. It is often intended to fit the specific demands of each business due to the differences in nature, goods, and services supplied. As a result, various firms utilize different costing strategies. (Massey, n.d.). There are three basic costing methods which are: 

Job order costing



Process costing

 Activity-based costing Job Order Costing Job order costing is a costing approach used to calculate the cost of producing each product. This pricing approach is typically used when a company creates a number of items that are distinct from each other and wants to assess the cost of doing a single operation. Direct labor, direct supplies, and production overhead are all included in task pricing. (Kesavan, n.d.). Its benefits include: 

Determining the profitability of the task



Making data-driven judgments



Monitoring equipment utilization.

Job order costing, on the other hand, fails to give reliable measurements of correct overhead forecasts, manage overhead costs, and in practice, it may be very complex and time consuming to oversee and measure specific information for every completed project. Process Costing Process costing is a costing technique that is used for the manufacturing of tiny, similar, low-cost objects. Process costing averages expenses and cannot be traced back to specific goods. (UKEssays, 2018) It entails the accumulation of expenses for long manufacturing runs with goods that are indistinguishable from one another. (Bragg, 2021). Its benefits include: 

It is simple and inexpensive to estimate process costs



It is simpler to assign spending to procedures in order to provide an accurate cost



It aids in determining process costs on a regular basis at short intervals.

Costs collected at the conclusion of the accounting period, on the other hand, have just historical value and are not particularly beneficial for efficient control. While calculating average expenses, some mistakes may arise. And calculating average costs becomes more complicated when more than one sort of product is manufactured and cost factors must be divided. When contrasting job order and process costing, 

Job order costing is used for one-of-a-kind products, whereas process costing is utilized for standardized items.



For short production runs, job order costing is employed, whereas process costing is used for big production runs.



Job order costing is utilized for charging clients since it details the specific expenses incurred by customercommissioned initiatives.



Job order costing necessitates far more record keeping since time and materials are attributed to distinct projects, whereas process costing aggregates expenses and need much less record keeping.



Job costing and process costing may be applied in both manual and digital accounting settings.

Activity-Based Costing The purpose of activity-based costing (ABC) is to assign costs to activities. This strategy has gained popularity as firms' complexity grows, and so does their need to allocate ever huge indirect expenses to the proper department or activity. ABC is a costing technique that assigns costs based on the cause-and-effect relationship between expenses and the activities that generate costs. (UKEssays, 2018). Contrary to job and process costing approaches, which focus on volume count to distribute overhead costs, ABC focuses on essential activities and allocates costs based on product usage. Its benefits include: 

The ABC technique generates more precise data, allowing for better management decisions.



Provides a greater understanding of the activities employed in production and their costs, resulting in increased efficiency in recognizing costly activities that require managerial attention. On the other hand, it is costly and may not be appropriate for businesses with a few or bespoke items.

I would propose the process costing technique in the case study of the Wet Suit World Company because the manufacturing cycle and necessary materials are essentially the same for all items. According to the information, other from the insulation levels, the suits all appear the same, and the flow of raw materials is constant, making it difficult to correlate the cost with the end product. Conclusion Cost accounting/costing methods provide information to experts about planning, cost management processes, and establishing unit production costs. It also aids in the measurement of the department's varied demands produced revenues. Even if organizations use different costing techniques, the costing method should be capable of accumulating expenses and distributing them to the product. Reference

Bragg. S. (2021). Accounting Tools – Process cost Accounting. https://www.accountingtools.com/articles/2017/5/14/process-costing-process-cost-accounting Kesavan, S. (n.d). Inventory Management – What is job order costing? https://www.zoho.com/inventory/guides/what-is-job-order-costing.html#:~:text=Job %20order%20costing%20is %20a,for%20doing%20an%20individual%20job. Massey, N. (n.d). Methods of Costing. https://www.economicsdiscussion.net/cost-accounting/costing-methods/31688 Ojha, D. (2019). Advantages and Disadvantages of Process Costing. https://www.civilservicegurukul.com/advantages-disadvantages-of-process-costing/ OSCRiceUniversity, (n.d). Principles of Accounting, Vol 2: Managerial Accounting. https://opentextbc.ca/principlesofaccountingv2openstax/chapter/why-it-matters-4/ Tuovila, A. (2021). Corporate Finance & Accounting – Cost Accounting. https://www.investopedia.com/terms/c/cost-accounting UKEssays. (November 2018). Job Order Costing Process Costing and Activity Based Costing. https://www.ukessays.com/essays/accounting/job-order-costing-process-costing-and-activity-based-costingaccounting-essay.php?vref=1 Walther, L.M & Skousem, C.J. (2009). Managerial and Cost Accounting. https://library.ku.ac.ke/wp-content/downloads/2011/08/Bookboon/Accounting/managerial-and-cost-accounting.pdf

Introduction

Operating expenditures and (SG&A) selling, general, and administrative expenses are two categories of costs involved in running a business that must be measured in order to determine the company's financial position. Operating expenditures are the costs associated with running a business on a daily basis; they often account for the majority of a company's expenses. Rent, utilities, salary, property taxes, and business travel are examples of operating expenditures. A company's management will strive to increase revenue while keeping operational expenditures under control. Murphy (Murphy, 2020) SG&A) are the running expenses of a firm that are not included in the direct costs of production or cost of goods sold. SG&A expenditures are often connected with a company's total overhead and cannot be immediately linked to the manufacturing of a good or service. All non-production expenditures are included in SG&A. (Murphy.2020). Accounting and legal expenditures, wages of administrative employees and company officials, advertising and marketing might all be classified as SG&A. Finally, SG&A is often shown as a distinct line item on the income statement and as an expense. Tesla SG&A Costs Overview Tesla's SG&A position and expenses are among the most critical factors influencing the company's profitability. Between 2013 and 2017, the graph below (Figure-1) depicts Tesla's yearly gross profit and SG&A spending as a percentage of sales (excluding Energy segment). The graph depicts $M450 in SG&A expenses (40 percent of revenue). (Broecker, 2017) Tesla's high SG&A expenditures reflect the company's direct sales approach. And, in order to comprehend how much Tesla's SG&A costs are, we may estimate its medium-/long-term SG&A spending in comparison to rivals. As demonstrated in (Figure-2). Tesla's SG&A (Sales, General, and Administrative) position is among the most important for the company's operating margin. Tesla can sell its cars directly to customers at retail pricing by employing a direct sales approach and a shop network. Tesla shifts costs from its gross profit margin towards SG&A. Long-term SG&A expenditures might be between 14 and 12 percent of sales, which is significantly more than rivals. (Broecker, 2017)

Tesla would have to offer its automobiles at a discount to dealerships to remedy this problem. In exchange, SG&A expenditures will fall since dealers would assume several of the indirect cost activities. Online sales are another way to cut SG&A. Tesla clients place their orders online. While I do not believe that the present level of internet sales is sustainable, it would diminish the necessity for conventional stores.

Figure 1. Tesla’s annual gross profit and SG&A expenses

Figure 2. 2017 G&A, Selling, SG&A Expenses as % of revenue for selected automotive manufacturers.

Conclusion Businesses should cut expenses in the long run and in a sustainable way. The emphasis in this project was on SG&A expenses (Selling, General, and Administrative Expenses), because they (together with material costs) would constitute the largest cost block and would show in all corporate departments. Also, based on the concepts I mentioned on the discussion assignment, I determined one method for tracking and reducing corporate overheads such as SG&A expenditures. It was the application of a metric such as the SG&A to sales ratio. It shows how much of every dollar your firm earns is sucked away by SG&A expenditures. Furthermore, the lower the merrier. SG&A ratio = Total SG&A / Total sales revenue

Reference Comendador, A. Z. Tesla's SG&A Costs: Out of Control (NASDAQ: TSLA). Seeking Alpha. https://seekingalpha.com/article/4124421-teslas-sg-costs-out-of-control. Murphy, C. B. (2020, August 28). Operating Expenses vs. SG&A. Investopedia. https://www.investopedia.com/ask/answers/101314/what-are-differences-between-operating-expenses-and-sga.asp. Tesla's Automotive SG&A - The Costs of a Direct Sales Model (NASDAQ: TSLA). Seeking Alpha. https://seekingalpha.com/article/4173913-teslas-automotive-sg-costs-of-direct-sales-model. What is SG&A? (Guide to Selling, General & Administrative Expenses): Bench Accounting. Bench. https://bench.co/blog/accounting/sga/.

Tesla, Inc. is a Palo Alto, California-based electric car and sustainable energy firm. Tesla designs, develops, produces, and sells electric automobiles, solar energy producing systems, and energy storage systems. (Tesla Inc, n.d.) In this brief discussion, I will examine Tesla's business expense, specifically where the firm spends its money. And what kinds of expenditures are incurred? According to the company's quarterly and yearly reports, Tesla's overall operational expenditures are comprised of three key components: 1. Research & development costs 2. Sales, general, and administrative expenses 3. Restructuring and related issues Research and Development: R&D expenses are generally made up of people costs for engineering and technological teams, production, test groups, and prototyping charges. (Tesla Operating Expenses and Cost Breakdown Analysis, 2020) Selling, General, and Administration Expenses: These are largely personnel and facility expenditures associated with stores, marketing, sales, administrative, financial, human resources, information technology, and so on. (Tesla Operating Expenses and Cost Breakdown Analysis, 2020). Restructuring and Related Issues: It is mostly connected to unintentional expenses, such as employee termination costs, liquidation of physical assets, court settlement payments, and losses from subleasing a building. Costs of restructuring Will not be included in all yearly or quarterly reports. Only when the corporation undertakes certain restructuring steps (Tesla Operating Expenses and Cost Breakdown Analysis, 2020) Both SG&A and R&D expenditures are fixed costs that Tesla will face regardless of how many vehicles it delivers or how many batteries it installs. Restructuring expenses are listed as non-operating expenditures and are therefore not likely to be repeated in the future. It would be classified as variable costs.

Reference Wikimedia Foundation. (2021, February 6). “Tesla, Inc.” Wikipedia. https://en.wikipedia.org/wiki/Tesla,_Inc. Tesla Operating Expenses and Cost Breakdown Analysis | Cash Flow Based Dividends Stock Screener. (2020, August) https://stockdividendscreener.com/auto-manufacturers/tesla-quarterly-operating-expenses/....