Question

Momo is producing earrings and other DIY products. Momo always has it’s own special product every month. In February, Momo produces it’s signature earrings called Bloom, the earrings only produce in February until Mid-March and will be sold in February and March.

They use French Hooks, Beads, Headpins, and Round Nose Pliers. They also use all of the French Hooks, Beads, and Headpins for all the other unique earrings based on customer design. You’re hired by the company to maintain their finance and also their management report that related to financing and accounting.

QUESTION :

Based on your opinion, which costing method is more effective used for Bloom and for other unique earrings? Are they using the same costing method or different costing method? Explain your answer based on the description of each method and your arguments

Answer 1

The best suitable method is Batch costing

It is an extension of job costing. A batch is a group of identical products. All the units in a particular batch are uniform in nature and size. Hence each batch is treated as a cost unit and costed separately. The total cost of a batch is ascertained and it is divided by the number of units in the batch to determine the cost per unit. Batch costing is adopted by manufacturers of biscuits, ready-made garments, spare parts medicines etc.

Each unique earing should be considered as each batch for costing.

The same costing method can be used for earing manfacturing but is not suitable for other diy projects.

For other diy projects the best suitable costiing method is Job costing, which  is also called specific order costing. It is adopted by industries where there is no standard product and each job or work order is different from the others. The job is done strictly according to the specifications given by the customer and usually the job takes only a short time for completion. The purpose of job costing is to ascertain the cost of each job separately. Job costing is used by printing presses, motor repair shops, automobile garages, film studios, engineering industries etc.

For earing manufacturing all the materials used are similar even tough the earnings change every month hence batch costing may be adopted, but the materials are not used for other projects.

Other projects require other materilas based on the requirement ofthe customer hence job costing is better for other diy projects.