MANAGING FINANCE

XYZ Co Plc

SECTION I

Design of the Proposed Costing System

Though the problems faced by management differ from industry to industry and from company to company within the industry the costing system employed by the company would be able to provide the management the required information to solve the problems peculiar to the company

Some manufacturing companies produce one or more standard products where the manufacturing processes are fairly established . In such cases the company may like to know the cost of each process . In some other manufacturing companies

the products may not be the same and will be manufactured only against customer s . No two products may pass through the same manufacturing process . In the case of these products the company may employ a job costing system to find out the cost of each job specifically . Thus , there are various systems of costing like job costing , batch costing , process costing , contract costing , marginal costing , standard costing and activity based costing (ABC ) that are being used by different companies based on the nature of the activities of the companies concerned . Each system of costing has its own merits and demerits that determine the usefulness of the costing system that is being practiced by the company

For the manufacturing company under study job costing system can be identified as the appropriate system of costing . Under job costing the cost object is an individual unit , batch , or lot of a distinct product or service called a job . The product or service is often custom made Because the products and services are distinct job-costing systems can accumulate costs by each individual product , service , or job . In a job costing system , the company accumulates costs incurred on a job in all parts of the value chain like Research and Development , design manufacturing , marketing , distribution , and customer service

The following are the general approaches to job costing

Identify the chosen job cost object

Identify the direct cost of the job

Select the cost allocation base to use for allocating indirect costs to the job

Identify the indirect costs associated with each cost allocation base

Compute the rate per unit of each cost-allocation base used to allocate indirect costs to the job

Compute the indirect costs allocated to the job and

Compute the costs assigned to it

Use and Relevance of Different Costing Techniques

Apart form the Job costing the other systems of costing are detailed below

Process Costing

In this system the cost object is masses of identical or similar units of a product or service . In each period process costing systems divide the of units produced to obtain a `per unit ' cost . This average unit cost applies to all the identical or similar units produced . The difference between job costing and process costing is shown below

Detail Job Costing Process Costing

Suitability Can be applied in the case of a batch Production Can be applied in the case of manufacturing of mass production

Material Variation in materials required for different s Same materials...