Jet2 Task 4
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- Date Submitted: 04/12/2014 11:00 PM
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Manufacturing Cost Structure
Costing Analysis
Tamera Fluaitt
Western Governors University
Manufacturing Cost Structure
Competition Bikes Inc. (CBI) is currently making both the carbon light framed bikes and the Titanium framed bikes. CBI needs to re-tool some of their current practices. Currently the company is using a Traditional Based Costing (TBC) although an Activity Based Costing (ABC) might be more valuable. CBIs breakeven point is in question with regards to the cost volume profit for both the CarbonLite bike and the Titanium bike especially since there is a potential for a $50,000 increase to production facility and a 10% materials cost increase. CBI needs to evaluate these areas to help the company navigate the new dual product lines production.
COST METHOD
Costing systems helps a company determine the cost of a product related to the revenue it generates. (Johnson, 2014)
Traditional based costing assumes that the volume metric is the underlying driver of manufacturing overhead cost. (Johnson, 2014) This means that a company’s accountants assign costs to only products and fails to allocate costs of manufacturing the product. This is the most commonly used costing method because it provides a value for the cost of goods sold.
One advantage to TBC is it aligns with the Generally Accepted Accounting Principles (GAAP) but a disadvantage to TBC is it is an outdated system because it often uses direct labor hours to calculate cost.
Activity Based Costing provides a more precise view of the products cost. ABC determines all activities associated with the production of an item and allocates a cost to the activity. (Johnson, 2014) Once a cost is assigned to the activity it is then assigned to the products that require production activity.
One advantage to ABC is greater costing accuracy because companies assign costs only to products that require activity for production. One disadvantage to ABC is implementing the ABC system can require...
Costing Analysis
Tamera Fluaitt
Western Governors University
Manufacturing Cost Structure
Competition Bikes Inc. (CBI) is currently making both the carbon light framed bikes and the Titanium framed bikes. CBI needs to re-tool some of their current practices. Currently the company is using a Traditional Based Costing (TBC) although an Activity Based Costing (ABC) might be more valuable. CBIs breakeven point is in question with regards to the cost volume profit for both the CarbonLite bike and the Titanium bike especially since there is a potential for a $50,000 increase to production facility and a 10% materials cost increase. CBI needs to evaluate these areas to help the company navigate the new dual product lines production.
COST METHOD
Costing systems helps a company determine the cost of a product related to the revenue it generates. (Johnson, 2014)
Traditional based costing assumes that the volume metric is the underlying driver of manufacturing overhead cost. (Johnson, 2014) This means that a company’s accountants assign costs to only products and fails to allocate costs of manufacturing the product. This is the most commonly used costing method because it provides a value for the cost of goods sold.
One advantage to TBC is it aligns with the Generally Accepted Accounting Principles (GAAP) but a disadvantage to TBC is it is an outdated system because it often uses direct labor hours to calculate cost.
Activity Based Costing provides a more precise view of the products cost. ABC determines all activities associated with the production of an item and allocates a cost to the activity. (Johnson, 2014) Once a cost is assigned to the activity it is then assigned to the products that require production activity.
One advantage to ABC is greater costing accuracy because companies assign costs only to products that require activity for production. One disadvantage to ABC is implementing the ABC system can require...