Different Types of Costing Essay

Open, View, and/or
Download this Document

Total Length: 1449 words ( 5 double-spaced pages)

Total Sources: 5

Page 1 of 5

Inventory Management

The author of this report is to speak on two major topics in this brief paper. The first topic is inventory management in the context of getting the right amount of a product where it needs to be and when it needs to be there. Further, there will be discussion of the ABC system as it relates to a firm that the author of this report is familiar with. There will also be a discussion of lean synchronization and its overall goal of perfect quality with no waste at all. There are two forms of waste in particular that will be discussed and those are waste from irregular flow and waste from inflexible response. While perfect quality with no waste is not really feasible, it should always be the goal for a firm that is serious about quality and proper inventory management.

Analysis

When it comes to inventory management, the concept of ABC is actually short for activity-based costing. It is a method of allocation overhead and overall expenses in a way so that the applicable overhead and such is apportioned based on the activity. For example, a non-ABC system would assign the same overall overhead to two different products regardless of how much of each is made. For example, if there is $50,000 of overhead and two overall products, $25,000 each would be applied to each product. However, unless identical amounts of revenue emanate from those two products, that would be against the concept of activity-based costing. If the revenue split was 60/40 between the two products and activity-based costing was in place, then the product that has sixty percent would get sixty percent of the overhead and expenses assigned against it and the forty percent product would get forty percent. Further, activity-based costing ranks products in terms of their overall profitability with the letter "A" being assigned to the most profitable, "B" to the second-most profitable and "C" to the third most profitable. Ford is a company that could obviously use activity-based costing to their advantage. For example, let us say that the only two models that Ford had (and of course they have more) are the Mustang and the F-150.

Stuck Writing Your "Different Types of Costing" Essay?

View All Our Example Different Types of Costing Essay

Have A Custom Example Essay Written

Let us also assume that the Mustang is thirty percent of Ford's sales while the F-150 is seventy percent. If they have one million in overhead, then $300,000 would be assigned to the Mustang's bottom line as an individual product and the other $700,000 would be assigned to the F-150 (Nikolakopulos 2015).

However, it should be noted that Ford would probably be wise not to use the ABC method because the Mustang and the F-150 are not the same cost…to Ford or to the consumer (Ford 2015). It is commonly accepted and practiced that unit cost is the more important factor when one wants to apportion overhead and expenses to individual items or product lines being sold. Further, there are some products and line items that are necessary evils due to compliance and so forth and thus assigning cost to them is not exactly productive or fair because they will have to be done no matter what. Beyond that, the activity-based cost system is rather costly to put into place and keeping running. Also, there are the conflicts with other cost systems like the mentioned above as well as others. For example, accountants typically ascribe to and abide by the Generally Accepted Accounting Principles set of standards. Those standards effectively mandate a cost-based system (as mentioned above) rather than activity. Put another way, if there is a small widget and a large widget and a batch of each both costs a million dollars to make, the overhead assigned to each group would be the same regardless of how many is in each batch because it is the cost that is being scrutinized and not the count. Since Ford is a publicly traded company and thus must abide (at least in terms of public reporting) abide by GAAP principles, they would focus at least most of their energies on the cost side of the accounting equation rather than the quantity one, although both matter to some degree (Phan, Baird & Blair 2014)

When it comes to lean synchronization, there are a number of different waste types but two in particular will be focused on for this report. The first one….....

Show More ⇣

     Open the full completed essay and source list


OR

     Order a one-of-a-kind custom essay on this topic


Related Essays

Absorption Versus Marginal Costing at Sleepease

Managerial accounting, there are different types of costing that can be used. Each method of costing has its advantages and disadvantages in different situations. It must be remembered, when determining what the best type of costing method is, that the objective of managerial accounting is to deliver useful information that can assist in managerial decision-making. Thus, managerial accounting matters to the extent that it can help to deliver on overall organizational objectives by providing strategic or tactical insights (Investopedia, 2016). There are two major costing methods -- absorption costing and marginal costing. Absorption costing… Continue Reading...

sample essay writing service

Cite This Resource:

Latest APA Format (6th edition)

Copy Reference
"Different Types Of Costing" (2015, August 28) Retrieved May 18, 2024, from
https://www.aceyourpaper.com/essays/different-types-costing-2152492

Latest MLA Format (8th edition)

Copy Reference
"Different Types Of Costing" 28 August 2015. Web.18 May. 2024. <
https://www.aceyourpaper.com/essays/different-types-costing-2152492>

Latest Chicago Format (16th edition)

Copy Reference
"Different Types Of Costing", 28 August 2015, Accessed.18 May. 2024,
https://www.aceyourpaper.com/essays/different-types-costing-2152492
   

Open, View, and/or
Download this Document
order custom essay example