Ca Study About Product Costing at Fine Foods:Is It a Symptom or the Problem?
Name：Shizhengqiang
doubt是什么意思Student Number:2012335810037 Before beginning the analysis to this ca, we just have a brief review about the ca. This ca describes a situation at the Fine Foods, Inc. A manager of strategic marketing unit two (smu2) in the Fine Foods, Inc. is frustrated with what she perceives to be unfair and inappropriate product costing for her unit but has nothing to do becau of lack of accounting knowledge. Then after have an accurate reading and understanding, we can have a clear perceive that the major problems Smith faced mainly in the process costing, special orders and performance evaluation.
Firstly, according to the demand, I first list some the relevant glossary of terms and definitions for Smith or reader. See as follow.
term Definitions
webquestCost object and cost driver Anything for which a measurement is desired. A cost driver is a variable, such as the level of activity or volume, that causally affects cost over a given time span.
脱口秀笑星黄西Product vs. period A product cost is the sum of the costs assigned to a product for a specific purpo, while period costs are all costs in the income statement other than cost of goods sold.
Fixed vs. variable Fixed costs are business expens that are not dependent on the level of goods or rvices produced by the business, while variable costs are expens that change in proportion to the activity of a business.
Direct vs. indirect Direct costs are directly attributable to the cost object. Indirect costs are costs that are not directly accountable to a cost object.
Incremental and common Incremental cost is the cost associated increasing production by one unit. Common cost is a cost that is allocated to two or more cost centers within a company.
superior是什么意思
Relevant vs. irrelevant A relevant cost is a cost that differs between alternatives being considered.
A irrelevant cost is a cost incurred by a company which is unaffected by management's decisions.
Controllable vs. Noncontrollable A Controllable cost is a cost which can be influenced by its budget holder. Noncontrollable costs are costs that cannot be controlled by a manager on
whom the responsibility of the cost is vested.
Allocation Cost allocation is a process of providing relief to shared rvice
organization's cost centers that provide a product or rvice. Popular
methods are dual allocation, volume allocation, activity-bad allocation. Process Costing
Product-costing procedure at Fine Foods (according to the description in the ca):
●Raw material, packaging material, and direct production salaries are added to
determine what Fine Foods calls direct calculated costs.
●Variable manufacturing costs are allocated bad on estimates and a mark-up to
西藏景点
cover spoilage and other incalculable costs.
●Most of the fixed production costs are allocated bad on the weight.
●Costs for top management, business administration, information systems, human
resources, supply management, and logistics are allocated to product in two steps.
According to the description above, combined with what we learn, we can learn that there exit some problems in it. For example, the variable manufacturing costs allocated bad on estimates may not accurate, fixed production costs allocated bad on weight is unfair for product MP and special orders are by products, the costs of them should be considered parately. That is to say, the unreasonable cost allocation will lead to enterpri pricing is not reasonable, product profitability is difficult to estimate and the error of production decision-making. Even wor, it may has a directly influence on performance evaluation.
So how can we to do it? According to we have just learned in management accounting, we know that the activity-bad costing is more accurate and reasonable
to allocate the cost than the company ud. The activity-bad costing focus on activity that allocation of indirect costs bad on causal activities and u a parate allocation rate for each activity. In this ca, fixed production costs are allocated bad on production time or transportation mileage rather than weight, eliminating the unfairness caud by the high density and heavy weight of product MP. Otherwi, for the product (MP), the freight cost is not irrelevant and should be allocated to the period cost and media and sales promotion costs are lling expens, which belong to period cost. So including them in the product cost is unreasonable. But in the company us
ed allocating method, tho costs are allocated to the product, which has the very big hidden trouble.
大黄蜂 英文
我爱你英文Special Orders
In this ca, special orders are tho in which the contract specifies that they can be rejected within one year before delivery (mostly the product MP). According to what we learned, the keys to making special decisions are focusing on relevant revenues, costs, profit and using a contribution margin approach that parates variable costs from fixed costs. Thus for Smith, it is proper to make a decision by contribution margin, but SMU2 didn’t consider all the factors when using this method. Such as fixed manufacturing cost should not be considered in decision-making, default cost should be amortized when accepting special orders and special orders were not handled specially. In addition to that, SMU2 accepts special orders just when the contribution margin (CM1) is positive (Fine Foods defines CM1 as net sales minus variable manufacturing costs (defined above) and freight out). However, that is not reasonable.
For special order considerations, it is important to consider that does the
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company have excess capacity available to fill this order and will the special price be high enough to
cover the incremental costs of filling the order? And just when expected increa in revenues exceeds expected increa in variable and the added foxed costs that accept the special order.
the innocence missionMoreover, due to the raw material ud to make product MP can be kept in storage for a fairly long time under proper conditions and always have a ready stock on hand becau of ud in many other products. Thus, for SMU2, it could u a just-in-time system to produce this special order and promote consumer preference to increa the profit.
英语辅导报社Performance Evaluation
Firstly, according to Peter Jones (the controller of Fine Foods) speaking, the SMUs have the ability to control the costs of their divisions, and other costs are allocated easily and fairly. Targets are established for CM1, CM2, CM3, CM4, and operating profit, and the numbers are reviewed monthly to e if corrective action is necessary. But for smith, Smith feels the method ud by Fine Foods to calculate operating profit doesn’t refl ect the true performance of the SMUs becau unit mana gement can’t control veral of the cost elements included in the calculation. Further, she believes using operating profit as the primary indicator for evaluating units has a negative motivational effect on the employees of her unit.
According to the above introduce, and combined with the table 2: contribution margins and operating profit, we can learn that there exit some shortcomings, such as high sales revenue may be followed with high bad debt ratio, some indispensable expens may be cut down, external environment may influence the performance of SMUs’managers and financial measures can’t evaluate managers’hard work on
raising the developing potential of the company.
Therefore, some new methods of performance evaluation for the company apparently more appropriate.
Responsibility center. A responsibility center is a part or subunit of an organization who manager is accountable for specific activities. In a cost center, managers are accountable for cost (expens) only. The foreman is not responsible for generating revenues becau he or she is not involved in lling the product. In a revenue center, managers are primarily accountable for revenue. In a profit center, managers are accountable for both revenues and costs (expens) and, therefore, profits. Profit center reports include both revenues and expens to show the profit center’s income and in an investment center, managers are accountable for investments, revenue, and costs (expens). In
vestments include asts and cash necessary to run the company. Management must ensure that all company investments are being ud wily and are aligned with the company goals to provide a strong profit.
The Balanced Scorecard. The balanced scorecard recognizes that management must consider both financial performance measures and operational performance measures when judging the performance of a company and its subunits. Tho measures linked with the company’s goal and its strategy for achieving tho goals. The balanced scorecard reprents a major shift in corporate performance measurement. Rather than treating financial indicators as the sole measure of performance, companies recognize that they are only one measure among a broader t. Keeping score of operating measures and traditional financial measures gives management a “balanced” view of the organization.
