Question

Identify and explain ONE (1) of the six common cost classifications used in a manufacturing business.

Explain why a business using a cost leadership business strategy would have different management accounting information requirements to a business using a product differentiation business strategy.

Identify and discuss ONE (1) advantage and ONE (1) limitation of Kilmarnock using income as a basis to allocate overheads to jobs.

Explain, using appropriate examples, the significance of equivalent units in a process costing environment.

Identify and discuss TWO (2) factors that need to be considered when managing a justin-time (JIT) inventory system.

Answer 1

Cost can be classified in many ways depending upon the purposes of classifation. For example cost classifiaction for valuattion of inventory and Cost of goods sold will differ from the cost classification in aiding the decision making of some project.

The cost in manufacturing business are mainly divided in three major categories and they are

1.Direct Material

2.Direct Labour

3.Manufacturing overheads

Direct Material:- Direct material cost consist of raw material inputs.These cost are the cost of raw material inputs which are used in producing the finished product. These are the integral part of product and can be traced out easily for each unit. For example for in manufacturing Glass bolltle glass the direct raw material to it is glass and we can trace out how much material(glass) is used in making per unit of it

Just-in-time:-Just-in-time Inventory system is management strategy that alligns the raw material order from suppliers with production schedule of the company ,it means comany orders the material when they require.Company adopts this strategy to increase efficiency and decrease waste by receiving the material when they require in production.this also helps the company in reducing the storage cost.

The Just-in-time is also know as TPS(Toyota Production System) as they used in car manufacturing in 1970s

The two factors that should be considered while using Just-in-time are as follows

1.Company needs to forecast the demand accurately so that they can ordered the inventory on time.

2.The company should have steady production,high quality workmanship,No machine break down and reliable suppliers.