Assume you are preparing for a second interview with a manufacturing company. The company manufactures customer-order holiday decorations and display items. During your first interview, you learned that the managers are not currently pleased with the timeliness of information and inventory measurements.
Discuss both:
- What type of cost accounting system this company should use, and
- the documents that you would recommend as part of the cost accounting system.
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Question asked by tshring_malla
Top comments (1)
The company manufactures its product after customer-order and deals with decorations and display items. It is obvious that the different customer have different designs and units for production. The product hence can be divided into small batches of similar products but can be unique for every batch and cannot be standardized (i.e one design is not produced in mass and served to all). In this company, every order might have a different cost as the material, labour and overheads in different batch must be calculated differently due to its uniqueness. So, the cost accounting system involved in the valuation must consider these factor for valuation.
In my opinion the company must use Job Order accounting system. The company can track the cost involved in production of each unique products, which can also be helpful in setting the price of the company’s products. “Manufacturing and service firm’s producing unique products or services require a job order accounting sysem”. Similarly, each department will be engaged in estimation of cost of their department, the problem of timeliness of information and inventory management can also be addressed. The information can help in fine tuning operations to generate higher productivity, decide on cost cut, estimate yearly cost and create strategic plans of company for future.
Cost accounting system also needs few documents like Job cost sheet, Materials requisition form, Materials ledger card and Labour time ticket. Job cost sheet is prepared to prepare estimate or allocate money to product and service. Material requisition form is prepared by the concerned department to request for the materials required in that department. A materials ledger card is record of resources channelized inside a warehouse from store, different manufacturing units and excess or unused resources. Labour time ticket keeps the record of labour working hour. An account of Overhead also needs to be estimated for calculating the cost of the company. These are the recommended documents needed for the cost accounting system.