Question

For the project:

You will have to choose any product.

You are the managerial accountant and you will have to estimate its cost.

In so doing, try to give examples about the several costs incurred (manufacturing and nonmaufacturing) and use what you have learned in this course to be able to know the cost of your product.

For your chosen product you may want to address the following costs incurred (note that what you may want to provide is NOT LIMITED to the following list):

- direct materials

- direct labor

- Manufacturing overhead (variable and fixed)

- Nonmanufacturing costs

You will have to explain:

1. Which costing method you have chosen and why (and why not other approaches).

2. What are your major challenges in estimating the cost of your product.

3. How can you minimise your costs for the future.

I am not asking for a minimum or maximum number of words or pages, as long as your analysis is relevant to what I asked.

Kindly tell me the product you have chosen before proceeding with your work.

there are no details about the product. I have to pick any product ex: mobile phone - laptop - watch - chairs - tables ...

Answer 1

Product - Cloth Bags

Cost Incurred-

1. Direct Materials- Fabric Cloth.
2. Direct Labour- Skilled Labour for stitching and packing
3. Manufacturing Overheads- Fixed(Rent,Depreciation on Plant and machinery, Salary to Supervisor) and Variable(Electricity based on the no. of hrs worked)
4. Sales Overheads- Fixed(Marketing Agent salary, Advertisement expenses) and Variable(Transportation cost).

1. Which costing method you have chosen and why (and why not other approaches).

I would use Job Costing as all the products are identical and the cost of batch can be a unit for which cost can be accumulated. We did not choose other methods as there aren't any specific requirements for the customers also the no. of processes and the scale of business is small.

2. What are your major challenges in estimating the cost of your product.

• Abnormal loss in the Fabric.
• Depreciation due to wear and tear in times of Covid-19.
• Division of electricity to manufacturing and sales overheads.
• Aportionment of huge advertisement expenses.

3. How can you minimise your costs for the future.

• Reducing abnormal losses
• Move to solar generated electricity.
• Forward and Backward integration in the business to reap the economies of scale.