Cost Behavior Patterns and Production Costing in Organizations Discussion

Cost Behavior Patterns and Production Costing in Organizations Discussion

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Cost Behavior Patterns and Production Costing in Organizations Discussion

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Classmate A

Learning Outcomes

In Chapters 5 and 6, we have learned about the cost behavior patterns and process costing in an organization. It considered that the cost behavior patterns and process costing in accounting decisions. Cost behavior patterns define how the organization and operating expenditures change or remain the same through dissimilar events.

Practices can be changed, particularly while changing the production levels or sales volume within a business. It may rise in fixed, variable, and mixed expenditures. For example, let’s assume that the cost of direct material of a bike company for each bike is $40. If the motorcycle unrestricted made one bike, the total variable price for natural materials is around $40.

If the bike company made two bikes, the total variable cost becomes double that is $80. It shows that the variable cost mainly changes in percentage to change in the volume of activity. If the production becomes double, then total variable cost also double, and the cost per unit remains similar. The term variable costs must define the full price with the variations in activities, not the price per unit.

In chapter 8, we also learned about how united airlines fight to regulate costs. United Airlines is considered the second primary air carrier in the world. The industry study that the airlines had high fixed prices, making it hard for the business to cut prices rapidly in line with its deduction in income. It also shows that there is difficulty in finding the fixed costs.

The fixed expenses are a significant element of total operating expenditures, making it hard for airlines to create short-term cuts in spending when income reduces. It seems that the variable, fixed, and mixed expenses are essential for quick decision-making and are used for a particular period. The appropriate variety is the range of actions for which cost behavior patterns are like to be correct.

In chapter 9 it has been discussed the process costing in production costs. Process costing is an introductory section in production costs because process costing defines the price of each product made as similar to the price of every other product.

It seems that a desk company produces desks, and it maintains a benefit over it that their participants made desks in large quantities, that is 4000 to 8000 desks per month, with the help of globally accepted designs. It permits the business to purchase material in bulk, which results in a discount on costs from suppliers.

The same desk is made for all the consumers; as a result, desk products can limit the production procedure to two processing sections: assembly and finished. New participants recently started producing the same desk, and the desk company worried whether the desk production price is reasonable. The above example shows that it is hard to make the production process successful without proper technique costing.

The managers can use cost behavior patterns while making decisions because it helps to correctly calculate the costs and how the prices behave given changes in inactivity. It helps to know how fees are structured.

The executives can use process costing while making decisions because it helps determine the price of existing procedures by which the products and services are completed, acquired, delivered, and supported. For example, a company that produces ink containers relates process costing through different sections.

During a 30-day time, the total direct cost of material is around $80,000, and labor head and overhead costs are around $100,000. The design section of a procedure of 10,000 containers during a month shows that per unit containers amount to $8 for direct costs and $10 for indirect costs.

References

Anderson, A. M., & Van der Merwe, A. (2021). Time-driven activity-based costing related to digital twinning in additive manufacturing. South African Journal of Industrial Engineering, 32(1). https://doi.org/10.7166/32-1-2271

Prinja, S., Brar, S., Singh, M. P., Rajsekhar, K., Sachin, O., Naik, J., Singh, M., Tomar, H., Bahuguna, P., & Guinness, L. (2020). Process evaluation of health system costing – Experience from CHSI study in India. PLOS ONE, 15(5), e0232873. https://doi.org/10.1371/journal.pone.0232873

Varadi, S. S., & Taghavi, A. (2017). Identification and Prioritization of the Factors Affecting the Implementation of Activity-Based Costing with Analytic Hierarchy Process: Qaemshahr Municipality Case Study. Journal of History Culture and Art Research, 6(1), 366. https://doi.org/10.7596/taksad.v6i1.748

Xu, S., & Zheng, K. (2018). Tax Avoidance and Asymmetric Cost Behavior. Journal of Accounting, Auditing & Finance, 0148558X1879375. https://doi.org/10.1177/0148558×18793757

Classmate B

Production Costing

The objective of this module is to educate students on various production costs, differentiate between job costing and process costing, product cost flows using different methods, cost behavior patterns, and cost estimation methods. Production costs refer to the total costs involved to produce a certain number of items or services and usually includes labor, raw material, etc.

It includes direct materials, direct labor, and manufacturing overhead. A process costing system is used by businesses that produce identical units of product in batches using a consistent process. A job costing system is used by businesses that produce different products or jobs.

It uses the example of a company that produces wooden desks and tries to reduce the production costs to stand in the competitive markets. The average cost per unit is the sum of all costs divided by the number of items produced.

A company is in profit when the revenue is higher than the costs. Thus, it is important to identify different factors and types of costs involved in the production of an item depending on the nature of the company to be in profit.

Managerial accountants provide a clear understanding of different input parameters involve for any operation in a given period of time and it is very helpful for the management to take important decisions.

It is also important to understand fixed, mixed, and variable costs for pricing, product mix, and capacity expansion decisions. (Kee, 2008). Fixed costs are independent of the number of units produced or sell whereas the variable cost changes with the sales or production.

Mixed cost is the combination of two and contains a fixed based rate and a variable rate that fluctuates. For example, a resort offers you up to 30 days of free stay for a $1000 membership, and the cost $100 per day of any additional stays over 30. Hence, if you utilize the resort for 35 days in a year then your mixed cost would be ($1000 + $100 * 5) which is $1500 per year. (Bode, & Marcinko, 2010)

Reference:

Kee, R. (2008). The sufficiency of product and variable costs for production-related decisions when economies of scope are present. International Journal of Production Economics, 114(2), 682-696.

Bode, G. L., & Marcinko, D. E. (2010). Accounting for Mixed Practice Costs. The Business of Medical Practice: Transformational Health 2.0 Skills for Doctors, 395.

Classmate C

Process costing describes as a method for collecting and assigning manufacturing costs to the unit produced (Averkamp, 2019). It helps to indicate the production cost for mass production. It helps to collect and assign manufacturing costs to the different units. There are few types of process costing like,

– Standard costing – for calculating costs for production units called standard costing. In accounting terms, total costs are calculated based on the standard cost.

– Weighted average – weighted average uses the average cost per unit by calculating the difference between beginning cost and current period costs.

– First-in, first-out – this term focuses on the cost of the units in order they are produced. The first produced product cost will calculate first.

In conclusion, for internal control over the inventory, process costing is helpful. It determines the cost for each process and adds them to the final cost. It also helps to standardized the production cycle.

Cost Behavior:

In basic terms, cost behavior patterns are known as fixed, variable, and mixed costs (Schmitz, 2012). When the cost reacts to changes in the production or activity in the organization is called cost behavior.

The concept of cost behavior will help the management to know the cost and react according to by creating budgets, forecasting, planning of risk in the beginning, and profits. As mentioned earlier, process costing has mainly three terms.

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– Fixed cost – fixed cost remains the same even though production changes. It stays the same regardless of any number of units produced in the organization. For example, if a company produces 1000 units of TV and the fixed cost for those 1000 TVs is $45,000. It remains the same for 950 TVs and for 1050 TVs.

– Variable cost – the cost which changes according to the product changes, it called a variable cost. When production increase, variable cost increase and vice-a-versa. For example, if the variable cost for 1 table is $5, the variable cost for producing 100 tables will be $500, for 500 tables, it will be $2,500, and so on.

– Mixed cost – the cost that has characterizes variable and fixed cost is called mixed cost. To calculate the mixed cost, it should be divided between variable and fixed costs.

Therefore, analyzing the cost behavior helps the management to define their profit and break-even points.

Reference:

Averkamp, H. (2019). What is process costing? Accounting coach. Retrieved from https://www.accountingcoach.com/blog/what-is-process-costing

Schmitz, A. (2012). Chapter 5 How do organizations identify Cost Behavior Patterns? Retrieved from https://saylordotorg.github.io/text_managerial-accounting/s09-how-do-organizations-identify-.html

Cost Behavior Patterns and Production Costing in Organizations Discussion

Cost Behavior Patterns and Production Costing in Organizations Discussion

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