Principles of Cost Accounting Edward Vanderbeck 2013 Order Instructions:
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Search for the following concepts when looking for appropriate resources:
•Standard Cost System
•Cost Variances
•Cost Accumulation
•Overhead cost allocation
Relevant and credible sources that can be used to support the concepts discussed in the case
Principles of Cost Accounting Edward Vanderbeck 2013 Sample Answer
Edward vanderbeck (2013). Principles of cost accounting
The author generally talks about cost accounting and how management applies cost accounting in the management of costs. As written by the author, cost managers collect, analyze, summarize and evaluate a variety of courses of action on cost management. Through cost management, appropriate information is given to the cost managers on how to control operations and budget for the future. The methods employed in cost accounting are standard costing and actual costing. Standard costing uses forecasted cost instead of actual cost when recording. Variances between the expected cost and actual cost are then determined. On the other hand, actual costing uses the actual costs of materials and labor used in production.
Applying the author’s text on case 19-1, it is evident that Conley uses standard costing while Bennet uses actual costing in its production. Conley uses a budget to estimate costs while Bennet Company assigns the cost incurred to each product. Also, Conley overhead rate and production estimates are based on the entire year. Each month’s actual cost and each month’s production volume are used to assign the actual cost in Bennet Company. The two systems used by the companies are different.
Under standard costing, as applied by Conley, paperwork and record keeping cost is pre-determined before the beginning of the year. Paperwork and record keeping are specifically done by employees who are considered to be direct labor to their respective departments. The costs for the labor used are assigned to the employees who keep records, and the cost for stationaries used in paperwork and for the keeping of records is also budgeted and the cost charged to the overall overhead cost. For Bennet, the cost of record keeping and paperwork is charged specifically to a product that used the materials. If an employee worked on record keeping for a specific material, the actual cost is assigned to the material. Also, stationary used for record keeping and paperwork is also charged specifically to the product that consumed the materials.
Picone, Mina, and Destri (2012). Bringing Strategy Back into Financial Systems of Performance Measurement: Published by Business System Review
The authors tried to explain how having strategic measures in cost management lead to performance improvement in organizations. The variance that arises as the difference between actual cost that occurred and the normal cost against which it is measured is either rate variances or volume variances in standard costing. Rate variance is also referred to as the price variance and results when there is a difference between the actual price paid for a product and the estimated price.
Conley accounting system gets differences between actual and standard cost from differences in price between the estimated price of truck bodies and the actual price paid for the truck bodies multiplied by the number of units. Also, the difference between actual and standard cost occurs when there is a difference between the actual amount of products sold and the budgeted amounts multiplied by the price per unit. Since Conley used the standard cost in calculating selling price, it led to differences in the actual total cost that could have occurred either as direct material cost, labor cost, or production overhead cost. Standard costing strategically provides for budgeting in an organization.
Historical cost is used in budgeting for the overhead cost of a specific product model. Since overheads were charged yearly at a certain percentage of the total direct labor, estimates for the total overhead would be apportioned as per the previous cost assigned the model. The overhead for each model is therefore allocated by summing up all the manufacturing overheads and then use a certain activity measure to apportion overhead to inventory. Conley uses labor hours to apportion overhead to inventory.
The system for allocation overhead should be changed. Allocating overhead monthly is costly and time-consuming. Also, overhead is not directly related in the development of a product since it’s either administrative or manufacturing overhead. The overheads are fixed since they do not affect the volume and rate of producing a product and should, therefore, be charged yearly to save time.
Shawn Parker (2015). Proper Use of Standard Cost Methods Enhances Efficiency.
Shawn describes the use of standard costing and its effectiveness if it’s applied well by cost managers. Hence, the best accounting method is the standard costing. When standard costing is used, the overhead rate used is usually more uniform and realistic for all of the units produced in an accounting period. Under actual costing, it takes a lot of time to aggregate costs into costs pools and the allocated overhead is normally not uniform in the different accounting periods. Standard costing adjusts the overhead rate every few months to make it almost equal to the actual overhead.
Also, standard costing allows the use of budgets. Budgets help in estimating the amount required for production in a certain accounting period. Actual costing cannot use budgets since it’s not possible to get the actual costs of producing a product beforehand. Hence, standard costing leads to better managerial control of costs by the use of a budget.
Under standard costing, it is easy to formulate prices for specific products. A company that uses standard costing uses the standard cost to project the price of a product after which it adds on a certain margin to get the selling price of the product.
Chris Crowder (2014). Three Tips to Make Standard Cost Accounting More Effective
After researching on the application of standard costing by different companies, Chris describes overhead as the main component that differentiates actual costing to standard costing. When overhead is allocated annually, the overall cost is decreased.
Bennet needs to modify its system by applying standard costing in the allocation of overhead since it gives more realistic and uniform overhead during the year. Overhead should also be allocated on an annual basis to save time and costs. Standard costing should be used for custom made products while actual costing is beneficial when analyzing the exact cost for producing a specific product.
Principles of Cost Accounting Edward Vanderbeck 2013 References
Chris Crowder (2014). Three Tips to Make Standard Cost Accounting More Effective. Retrieved from http://businessfinancemag.com/tax-amp-accounting/three-tips-make-standard-cost-accounting-more-effective
Edward vanderbeck (2013). Principles of cost accounting
Picone, Mina, and Destri (2012). Bringing Strategy Back into Financial Systems of Performance Measurement: Published by Business System Review
Shawn Parker (2015). Proper Use of Standard Cost Methods Enhances Efficiency. Retrieved from http://www.automationworld.com/discrete-manufacturing/proper-use-standard-cost-methods-enhances-efficiency
