Instructions: 250 words each questions. Identify one or two concepts addressed for the two questions and expand upon with additional research or identify a critical concept that would help to expand.
- Discuss the different product costing methods and when each method is most appropriate to use.
- Discuss the impact of unused capacity on product costing.
Please be sure to validate your opinions and ideas with intext citations and references in APA format.
Attached is the Case Study on Chandler Corp.
At first review of the case study for Chandler Corp one would suggest that activity based costing should be used. This method known as ABC, is for assigning costs to products, services projects, tasks, or acquisitions; based on the activities that go into them as well as resources consumed by these activities. This is particularly important for businesses that do customized work like Chandler Corp. (Ayres, 2016). The company employs designers and engineers who play a vital role in the construct of the products sold. However, if the company decides to take new orders that are being proposed they would have to switch methods. They would need to utilize process costing because they would be preparing the same structures in high volume over an extended period of time. From what I gather they will still be doing custom orders as well. So in order to effectively account for all goods sold the production will need to be measured by process costing for the mass identical products with job costing for the custom jobs.
Ayres, Crystal. (2016, Jul 23). 8 Pros and Cons of Activity Based Costing. GreenGarage. Retrieved from https://greengarageblog.org/8-pros-and-cons-of-activity-based-costing
Every business no matter how big or small incurs costs. Costs can be defined as the money or resources associated with a purchase, business transaction, or any other activity (EduPristine, 2017). Businesses incur a various number of costs from all aspects. Because of this, many individuals opt to use a certain method of costing so that they can be used to refer to the different processes or procedures employed for determination and presentation of costs (Pethari, N.D.). Two common methods of costing are:
- Activity-Based Costing- Assigns overhead and indirect costs to related products and services by recognizing the relationship between cost. Overhead activities, and manufactured products (Kenton, 2020).
- Process Costing- Collecting and assigning manufacturing costs to the units produced when nearly identical units are mass produced (Averkamp, 2020).
In reference to the case study on Chandler Corp, I think the company should use the Activity-based costing (ABC) method. The ABC method allows a manufacturing company to allocate costs in a certain way so that owners are able to see “nearly true costs”, (Kenton, 2020). If Chandler Corp. were to use the ABC method of costing, they would be able to more accurately and precisely decide on whether they should take on new clients or not. At the same time, if Chandler Corp. does take on those clients and has repeating orders, then they could use process costing because they would be mass producing identical units.
EduPristine. (2017) Costing Methods & Important Cost Terms. Retrieved from: https://www.edupristine.com/blog/costing-methods (Links to an external site.)
Kenton, Will. (2020 February 10) Activity-Based Costing (ABC). Retrieved from: https://www.investopedia.com/terms/a/abc.asp (Links to an external site.)
Averkamp, Harold. (2020) What is Process Costing? Retrieved from: https://www.accountingcoach.com/blog/what-is-process-costing (Links to an external site.)
Pethary, A. (N.D.) Different Methods of Costing. Retrieved from: http://www.economicsdiscussion.net/cost-accounting/different-methods-of-costing/31651