Analysis of Standard Costing System and Decision Making Essay

The week four individual paper addresses the implementation of Activity Based Costing (ABC) by Super Bakery, Inc., a virtual corporation founded by Franco Harris. Specifically, management strategies, the reasoning behind an ABC system, and the alternatives of a job order cost system or a process order cost system are assessed for this enterprise.

This research paper is a brief discussion of budget management analysis. Budgeting is the key to financial management, and is the key to translates an organization goals or plan into money. Budgeting is a rough estimate of how much a company will need to get their work done, and provides the basis for evaluating performance, a source of motivation, coordinating business activities, a tool for management communication and instructions to employees. Without a budget an organization would be like a driver, driving blinded without instructions or any sense of direction, that’s how important a budget is to every organization and individual likewise (Clark, 2005).

In the era of consumerism, abundance of essential products is critical to supply the high demands. This would have been very difficult without Henry Ford and his excellence in operating the assembly line. Assembly line is one of the most reliable and durable production techniques ever invented. In the 20th century, assembly line was amongst one of the most remarkable technological advancements. Nearly all the products that we use nowadays, we would not have it in the amount we need and at the prices we have it without the assembly line. The assembly line has played a major role in modifying the world and it is the main force behind every industry on earth. The use of assembly line in industries such as automotive, arms, and food has played a key role in supplying the world with essential products while minimizing the total cost. The operation of assembly line in various industries has assisted the world in providing crucial products that we need to make our lives easier.

Traditional Cost method is defined as “The traditional method of cost accounting refers to the allocation of manufacturing overhead costs to the products manufactured. The traditional method (also known as the conventional method) assigns or allocates the factory 's indirect costs to the items manufactured on the basis of volume such as the number of units produced, the direct labor hours, or the production machine hours. We will use machine hours in our discussion. By using only machine hours to allocate the manufacturing overhead to products, it is implying that the machine hours are the underlying cause of the factory overhead. Traditionally, that may have been reasonable or at least sufficient for the company 's external financial statements. However, in recent decades the manufacturing overhead has been driven or caused by many other factors. For example, some customers are likely to demand additional manufacturing operations for their diverse products. Other customers simply want great quantities of uniform products. If a manufacturer wants to know the true cost to produce specific products for specific customers, the traditional method of cost accounting is inadequate.” AccountingCoach. (n.d.).

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Assembly lines are a big part of manufacturing in almost every country in the world. Some work better than others, so an analytical breakdown would be required to be able to tell which factories and countries are more effective than others, and what they do to get that way.

The North American market is very price-sensitive, and some components, like OE and spares which are in the mature period of their life circle, the traditional cost system seems to be a method for them in this company. Thus, in the situation that price is almost the most important order-winning criterion. Traditional cost system is judged in that it is suitable to manufacture the required product at minimum cost and efficiency.

When a product is designed a specification is created to determine the standards for the product. In manufacturing these standards are given an allowable range. The most common attributes for these types of products are size, shape, color, weight, and piece count. The standards placed on these attributes determine the material used, equipment needed for processing, and labor. The tighter the standards are on these attributes the higher the cost is to produce. In today’s market, there is a demand to produce high quality products at competitive price

Standardizing the cost management system companywide is an important step in improving the link between cost management and

Cost accounting is a type of accounting process that aims to capture a company's costs of production by assessing the input costs of each step of production as well as fixed costs such as depreciation of capital equipment. Cost accounting will first measure and record these costs individually, then compare input results to output or actual results to aid company management in measuring financial performance (Cost Accounting, n.d.).

Process costing is an easier system to use when costing homogenous products compared to other cost allocation methods. Each process applies direct materials, labor and manufacturing overhead to the production cost total. Management accountants take the total number of goods leaving the process and divide the total process cost by this number. This creates a simple average cost for each item produced. Another advantage is that business owners use process costing because it creates a flexible production process. Companies needing to refine their process can simply add or remove a process as necessary. This also allows companies to lower their production cost for each good. Adding a process allows companies to produce slightly different goods or improve product quality. This flexibility ensures companies can produce at the most competitive cost in the economic marketplace. Also process costing provides an approach to allocate costs to

The board of directors of the Cortez Beach Yacht Club (CBYC) is developing plans to acquire more equipment for lessons and rentals and to expand club facilities. The board plans to purchase about $50,000 of new equipment each year and wants to begin a fund to purchase a $600,000 piece of property for club expansion.

The assembly line allowed for the specialization of product production, whereas before the assembly line there would be a slower process of producing products, for example, each piece would have

Under the new cost system, two broad sources of costs were identified: manufacturing and SM&A. All costs within these categories were reclassified as either volume driven or order driven. Hence, four cost pools were set up.

During the 1980s the limitations of traditional product costing systems began to be widely publicised. These systems were designed decades ago when most companies manufactured a narrow range of products, and direct labour and materials were the dominant factory costs. Overhead costs were relatively small, and the distortions arising from inappropriate overhead allocations were not significant. Information processing costs were high, and it was therefore difficult to justify more sophisticated overhead allocation methods.