Question

In Operation Costing,

1. Briefly discuss the features of your chosen costing system.
2. Identify 2 specific Australian organisations that your chosen costing system is suitable to, and explain why.
3. Discuss the potential uses of the cost information for decision-making, to the managers in each of the 2
organisations selected in Q2 above.

(Make it Detailed)

Answer 1

3. The first example was of dental crown manufacturer and second of car-painting. They use operational cost for decision making in the following ways:

• Costing helps in segregating costs and processes to relevant and not relevant. That costs which are not relevant are eliminated. Its helps in identifying those costs incurred that are unnecessary and add no value thus pulling up the price or reducing the profits.
• The information also helps to identify which process and costs can be substituted by alternative of make or buy. For instance outsourcing the job order of modifying the crown to suit the sizes and concentrating on the base process only rather than in house process and job could impact costs as well as profits.
• Useful in determining if automation of process is necessary. For instance, changing painting job by machines saves Labor costs and increases efficiency in case of the second case. However the manager should keep a watch on the capital outlay and routine maintenance costs.