Share
Explore BrainMass

Cost tracing, cost allocations; Manufacturing acocunting methods

#1

Well that glorious day has arrived and you have opened up your owned beautiful business consulting practice in that new tower located on the corner of 56th Street and Lexington, New York City!!! Who would have believed the day that you were sitting on top of the world. You unlock the doors and await that first client.

After about two hours of playing paper clip football, and with the home team down three touchdowns in walks a little old lady, who looks like she might be 1000 years old, and you have to contain yourself not to ask if she went to kindergarten with George Washington. You gird yourself and walk over to the nice lady with the best business smile you can muster, "Yes, miss, may I be of assistance to you?" "Well, unless, you can tell me how to help my business, then you can tell me where the ladies' room is and I'll be on my way!" she replied indignantly. Reaching deep within inside yourself not to respond to the old bitty's remarks, you muster the next best smile you possessed since the day your date picked you up for your junior prom in that pink tuxedo, and your mom told you that it would be a nice thing to do. "Yes of course, Mrs., I am sorry I did not get your name." "Mrs. John McCarthy." "Well Mrs. McCarthy please explain to me your problem.

Mrs. McMarthy explains that she has been selling these new quilt covers that she has been making by hand and has seen a recent burst in revenue. She can not turn them out faster than the orders are coming in and she has hired on three women to help her in preparing the quilts. Even though the orders are bursting the top drawer in her antique courier, which of course she purchased in Macy's when Macy's was a real retailer, not like now just trying to please the local consumer with a little skin, she digressed a lot during her narrative; nevertheless, she was making very little profit on the quilts she sold. You asked Mrs. McMarthy if she expected more sales, and she said that she has on standby 5 orders from various New England Bed and Breakfasts that saw her quilts in a recent trade magazine and wish to put them on all their beds in their hotels.

You asked Mrs. McCarthy a few more questions, like how much material did she buy on a weekly basis, which she replied that purchases were done according to the orders, you asked her also about the wages of the employees, which she also responded depended upon the amount of work was produced.

Without the use of figures, analyze Mrs. McCarthy's situation and determine the cost structure she is using and whether it is helping her profit margin or hurting it. Can you think of any suggestions that might help Mrs. McCarthy increase her bottom line.

#2
Discuss the importance of cost tracing? Cost Allocation? How do they differ and how are them similar? Define a cost driver? Choose a day to day event that you might use these tools to properly budget yourself, and to see where you might be overspending or under spending.

B. You need to make lunch for your son's baseball team. In about 1 hour 10 boys are going to be romping up and down your living room demanding their lunch. You go shopping and plan sandwiches, fruit and potato chips. You start making the sandwiches, but since you are on a limited budget you will only put one 2 pieces of lunch meat in each sandwich and one leaf of lettuce. You decided, nevertheless, to splurge and get those fancy Ruffle type chips, because they are your son's favorite.

What is/are the cost driver's in this example? Anyone else have an idea?

#3
Discuss what are the primary accounting methods a manufacturing company may use in product cost flows. Does cost allocation come into play when employing these accounting methods? When would a manufacturer choose one over the other? Is one better than the other? In one paragraph start a manufacturing company making lemonade, choose one of the primary methods of accounting to trace your costs of goods sold, then compare to the other primary method and determine which is better.

Solution Preview

ANSWERS

Question 1
Based on the information provided given by Mrs. McCarthy, I can conclude that her cost structure is comprised mostly of variable costs and little fixed costs. Moreover, her variable costs are comprised mostly of the cost of direct materials and a significantly less proportion of labor costs.

Furthermore, based on this cost structure and her purchasing behavior, suggestions that might help Mrs. McCarthy increase her bottom line are:
? Buy in bulk to take advantage of volume discounts. Creating a forecast of how much orders/sales she can make will allow her ...

Solution Summary

Cost tracing and cost allocations are examined for manufacturing accounting methods.

$2.19