Question

Search for How It’s Made

Your Topic: __________Legos_________________

Watch the video and answer the following questions:

https://www.youtube.com/watch?v=zrzKih5rqD0​

What is your product/service? Why is process costing appropriate for this setting?

Why does the company that makes the product/service need a cost system? Describe 2 decisions a manager might make based on cost information.

Describe the raw materials used in each process and name 2 costs that would be included in conversion cost for each process.

How would the company determine the cost of units in process at any given point in time? Why would managers need to know the cost of times in process?

Answer 1

Product is building bricks by Lego.

Process costing is used where material has to pass through two are more process for being converted into final product. Process costing is used when there is mass production of similar products and costs of individual otput cannot be differentiated.

Under this concept, costs are accumulated over a fixed period of time, summarized, and then allocated to all of the units produced during that period of time on a consistent basis

The Lego produces bricks (and tiny people or other shapes) in mass quantity in automated processing system, here products are very much similar with same rawmaterial, only process is different for different bricks, shapes and tiny people. process costing clearly identifies the cost for each process, it is most appropriate for this kind of setup.

According to W.W.Bigg-“ Cost accounting is the provision of such analysis and classification of expenditure as will enable the total cost of any particular unit of production to be ascertained with reasonable degree of accuracy and at the same time to disclose exactly how such total cost is constituted.”
According to R.N. Carter, “Cost accounting is a system of recording in accounts the materials used and labour employed in the manufacture of a certain commodity or on a particular job.”

Advantages of Cost accounting

1.       Help in Cost control

2.       Help in Decision making

3.       Guides in Price fixation

4.       Finds outs profitable and unprofitable operations

5.       Finds out idle capacity

Rawmaterial for bricks is tiny granuels of plastic. color

Costs included in process are rawmaterial, electricity, consumables for melting tiny plastic and making them into different shapes

For making tiny people apart from the above it needs color to imprint face

If the stock is in process, cost of unit will be calculated based on the completed process. Managers need to know the value of stock in process to know the value of inventory.