An analytical summary
Process Costing
Companies use the process costing method when they produce identical units of products. For instance, companies like Chevron Corporation use the process costing method for petroleum products. Similarly, Wrigley Company uses it for producing chewing gum and Pittsburgh Paints use it for manufacturing paint (saylordotorg.github.io, 2020). There is a difference between process costing and job costing. In the case of job costing, unique jobs or products are produced. For instance, Lockheed Martin is renowned for advanced technology systems and Boeing is renowned for its airplanes. One of the key takeaways of the module is that process costing system can be used where identical products are produced in batches and the process is consistent as well. On the other hand, when companies produce unique jobs or products, they tend to employ the job costing method. In the case of process costing systems, the processing department tracks the costs. In the case of a job costing system, the job tracks the costs. In the case of process costing, production departments use direct materials. Therefore, it is possible to record the costs of direct materials. Similarly, the production department also has direct labor. The costs of direct labor can be calculated using the process costing method. In the inventory account of the production department, the labor costs are recorded. The concept of manufacturing overhead has been explored as well. The manufacturing overhead is assigned to products with the help of a predetermined overhead rate. Here, the normal costing methods are used as well. Another concept has been discussed in the module. It is Transferred-in-costs. These costs are accumulated at the time of the upstream production process inside a company. These costs are a combination of manufacturing costs used by several departments. In the last stage, goods are developed so that they can be sold. The finished goods undergo a checking from the final production department. One of the key takeaways of the module is that cost flows of job costing method is similar to the cost flows of process costing method. The only difference is that in the case of process costing, product costs are assigned. For example, direct labor, direct materials as well as manufacturing overhead.
Cost Behavior
The cost behavior patterns aid organizations to identify the type of costs that will remain the same and the type of costs that might change due to fluctuations in the sales volume (saylordotorg.github.io, 2020). There are three common types of cost behavior patterns. These are fixed costs, variable costs, and mixed costs. The variable costs are costs that tend to fluctuate with fluctuations in the activities. While producing a product, the variable costs of activities that keep on changing are costs of direct labor, direct materials, energy-related costs, and indirect materials. Similarly, during the production process, the cost of certain activities remains the same. For instance, while producing bikes, certain associated costs such as salary of personnel, rent of the building, or insurance remain the same. These activities fall under the fixed cost category. Another type of cost behavior pattern known as the mixed cost entails that cost behavior changes based on total costs of activities and changes in the per unit cost of activities. A mixed cost is a combination of variable costs and fixed costs.
Usage of the concepts
The concepts outlined in the module can be useful as a manager. A manager is supposed to understand the patterns so that the management team can set realistic sales and production goals. The management along with the financial planners of the company needs to understand the cost behavior patterns. Moreover, the management would understand the break-even points and it can make necessary changes in the pricing strategies. The managers use the process costing method for determining the costs of processes. The processes are used for designing, delivering, and procuring services and goods (Maher, Stickney & Weil, 2012). Moreover, the managers can use the process costing method as a feedback method. The costs of similar products can be compared. The managers can keep future costs in check after analyzing the manufacturing budgets. The managers use simulations techniques for aligning the resources with the demands. These techniques are mainly useful fir responding to upcoming business opportunities as well.
References
How Do Organizations Identify Cost Behavior Patterns?. (2020). Retrieved 24 July 2020, from https://saylordotorg.github.io/text_managerial-accounting/s09-how-do-organizations-identify-.html