Question

In this module you will summarize the following:

1. Cost Management Systems: Analyze the process of assigning and allocating costs. Discuss the development of an activity-based costing system and how activity based management is used in decision making. Compare and contrast Just-In-Time and Quality Management Systems.

Answer 1

Cost Management Systems: Analyze the process of assigning and allocating costs. Discuss the development of an activity-based costing system and how activity based management is used in decision making. Compare and contrast Just-In-Time and Quality Management Systems.

Assigning and Allocating Costs - When we make a widget, it's easy to allocate hoy many bows we put on each widget because for every widget that is produced, there is on bow. Overhead costs like utilities and labor harder to assign to one widget. So the prices allocated. If we knew how much overhead went into making 100 widgets, it would be simple to allocate 1/100th of the overhead to the sales price of each widget. But these calculations must be projected; we do not have the luxury of knowing the overhead costs. We estimate and project them, and therefore the allocation is estimated. Eventually it is validated and future estimations are adjusted. We can track this costs plant wide, department wide, and even by the manufacturing activity. The more specific the activity we allocate to, the more accurate the projection.

Activity Based Costing Systems and Activity Based - Management Activity based Costing allows us to allocate indirect costs to each widget produced, while activity based management uses that allocation to make manufacturing and cost decisions. We know how much it costs to make 100 widgets and how to accurately price the individual widgets.so that costs are covered and desired profit margins are reached. Activity based management allows us to analyze ups and downs in labor costs, materials costs, and overhead costs to adjust pricing. If we can see through ABC that our labor costs are going down, we can lower the price of a widget to be more competitive while still maintaining or increasing our profit margin. If we observe that material costs are rising, we can accurately allocate that cost and make small adjustments to cover the exact increases instead of dramatic price jumps.

Just-in-Time and Quality Management - Systems Just in Time Managements systems manufacture products to meet demand so that inventory and overhead costs are kept at a minimum, materials are not stored and overhead is only need to manufacture as needed product. Raw Materials and Work in Process inventory are tracked in one account as is Labor and overhead in a conversion costs account. Journal entries are compiled after product completion, unlike ABC systems. Quality management Systems divide costs into four categories; Appraisal, prevention Internal failure and external failure, and require a lot of upfront of investment to reduce and eliminate costly mistake in the future. Cost-Volume-Profit Analysis: Analyze cost behavior in relation to changes in volume.