Manufacturing companies are constantly looking for accurate costing systems which is instrumental in establishing product/service costs. This helps in determining the companies competitiveness. Whereas costing is internally determined, accounting reports are predominantly driven by external financial reporting. However, inaccuracies of product costs are inevitable. As an adviser, you are aware that the product costing system is a systematic process of accumulating direct and indirect costs in the manufacturing process.
It is your objective to find out the actual manufacturing cost in the your case study company.
Prior to beginning your task, start with the assumption that the company uses the traditional costing system. Under this system, costs are allocated on the basis of machine hours or labour hours (Use only one of the two as applicable to your case study company. You are to also make an assumption regarding the estimated machine or labour hours and the actual cost incurred.
You are also informed that the company will need your advice about the introduction of Activity Based Costing (ABC) as compared to the traditional costing system. Given the competitive nature in the market due to E-commerce and globalization, manufacturing companies have realized the new frontier to achieve this goal is through effective, efficient and accurate costing systems. Note that, the inaccuracy of the traditional costing information is impeded in manufacturing companies.
Identify the latest financial statements of a manufacturing company of your own choice with a view to provide your expert advice on cost management that will ensure the ‘’effective, efficient and accurate’’ cost management objective and answer all the questions below. Your answers for each question should be framed in an ‘’advisory’’ version with theoretical, rational and logical arguments in reference to the cost models and the selected case study company’s cost structure. State clearly the assumptions taken, costing models and concepts applied in each respective question.