Question

DQ #1 DQ #1 Complete the e-Activity. Next, imagine that you have been hired as the production manager of a manufacturing company and must determine the best inventory costing system to implement. Discuss the key factors that must be considered before making the determination. Provide specific details and a rationale for your decision.

DQ #2 As a production manager, one of your key tasks is to improve efficiencies by either increasing productivity or reducing cost. Determine whether the responsibility reports needed to track performance should be created by department, function, or manager, using a costing method of your choice. Based on the costing method you selected, determine the type of data needed to track and evaluate performance to control costs such as cost per unit, cost per hour, etc. Be specific with your examples.

DQ #3 Our text discusses job order, process and activity based costing. Can ABC be integrated into a job order and/or process costing division of a company?

DQ #4. Many companies in the manufacturing, financial services and health-care industries are currently using ABC. Some examples are UPS, USPS, FedEx, Ford Motors, General Motors and many Hospitals. What are some difficulties that must be overcome when implementing ABC in a service-based company?

Answer 1

Indeed, a number of factors determine the type of inventory costing system implemented by an organization. These factors include the perishability nature of the inventory, inventory expiration date and likely tax savings (freepatentsonline.com). The rationale for considering the perishability of the product is related to the fact that highly perishable inventory needs to be moved out fast. Therefore, a First-in First-Out inventory costing system should be adopted unlike inventory of low perishability in which other costing methods may be adopted. Similarly it may be useful to apply a Last-in First-Out inventory costing system if buyers tend to purchase the most recent products. On the other hand, a firm would choose the inventory costing system that gives a lower ending inventory and thus report incur less taxes.

Basically, the responsibility reports needed to track performance needs to be created at the functional level. This is due to the fact that all tasked are performed at the functional level and therefore; the processes are well understood and controlled. Using an activity based costing method, functional level managers are able to apportion product costs in relation to real output and costs. Costs at functional level rather than departments to ensure better cost control under the activity based costing. Each function has its own set of activities in which to allocate the costs. Ideally, many types of data needed to track and evaluate performance to control costs in activity based costing include units of output and activity drivers that result to costs. Then we need information on the cost per hour of each unit of output for each activity such as units of electricity consumed per hour to be able to apportion the costs to the units of production.

References

Choice of inventory costing method of selected companies in the Philippines. Retrieved at: http://www.freepatentsonline.com/article/Journal-International-Business-Research/204419288.html