T13 Assignment: Primary 6 PBLY 14 2A Cost Competition Classi
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Analyze the cost computation, classification, and analysis related to a manufacturing company producing 1,000 rugs in 2011, with detailed cost data provided for various expenses incurred during that year. The task involves calculating total costs associated with production, classifying costs as fixed or variable, and analyzing inventory costs, including ending inventory valuation.
Paper For Above instruction
Introduction
Cost accounting is an essential aspect of managerial accounting that helps organizations ascertain the total cost of production, classify costs into fixed and variable components, and analyze the overall cost behavior to inform strategic decision-making. This paper explores these dimensions through a practical scenario involving a rug manufacturing company, emphasizing cost computation, classification, and inventory evaluation for the year 2011.
Cost Computation and Classification
The first step in analyzing manufacturing costs involves aggregating all expenses directly or indirectly associated with production. Based on the detailed data provided, the total costs incurred by the company during 2011 encompass various expense categories, which must be accurately classified as either fixed or variable to facilitate cost behavior analysis.
1. Plastic for casing: This expense is directly proportional to the number of units produced, making it a variable cost.
2. Wages of assembly workers: Typically, wages are considered fixed if salaried or variable if paid hourly based on hours worked, but in this context, with wages specified as a fixed amount, it leans toward a fixed cost component.
3. Property taxes on factory: Property taxes are fixed costs, as they do not vary with production volume.
4. Staff salaries: Salaries usually represent fixed costs, given the consistent payment regardless of output levels.
5. Cost of stands: Assuming this cost correlates with the number of stands used, it could be viewed as variable, but if stands are purchased in fixed quantities regardless of production volume, it might be a fixed expense.
6. Rent cost of equipment: Typically a fixed cost because rent remains constant over a period.
7. Upper management salaries: Fixed costs, since these are generally unaffected by production volume.
8. Maintenance service: Maintenance costs are often variable, increasing with production activity, but some maintenance expenses are scheduled and fixed.
9. Sales commission: A variable cost, as it depends on the number of units sold.
10. Machinery depreciation: Depreciation is a fixed cost allocated over the useful life of machinery.
Cost Behavior Analysis
Analyzing whether costs are fixed or variable facilitates understanding the company's cost structure. For example, raw material costs (plastic) fluctuate with production volume, indicating variable behavior, while property taxes and management salaries remain consistent, indicating fixed behavior. Accurate classification is vital to budgeting, forecasting, and cost control.
Inventory Cost Evaluation
The valuation of ending inventory involves calculating the cost of raw materials purchased and used, considering inventory movements throughout the period. For the company, purchasing 16,450 units of raw materials at specified costs, with adjusted inventory levels on December 31, requires detailed computation.
Conclusion
Effective cost classification and computation enable management to identify cost drivers, optimize resource allocation, and develop pricing strategies. Understanding inventory costs ensures accurate financial statements and aids in assessing profitability. A comprehensive analysis integrating these elements is fundamental to sound managerial decision-making in manufacturing entities.
References
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