ACCOUNTING

Business Management Techniques for Engineers - Costing Systems and Techniques

Business Management Techniques for Engineers - Costing Systems and Techniques

Task 1

Appropriate Costing System & Techniques for the Products of a Company

The engineering businesses involves the essentialness of each product to designed for performing certain functions in most efficient manner as well as sustain through particular operating situations without failing throughout its life. In historical accounting system, the engineers had to focus on technical features, ignoring the other parts of business process and leaving the downstream considerations on other departments which can affect the utilization and the cost associated with the product throughout its entire usage life. But this was past, currently, the engineering businesses have enhanced their process whether they are accounting systems or manufacturing systems. The leading engineering businesses incorporates the understanding of that technical work is just a part of cost driven business process. Keeping in mind this, our business accredited that a succeeding product can become a failure if its associated costs are not evaluated as well as controlled. Thus, for keeping our engineering process efficient, the company has implemented an appropriate costing system and technique for our products in line with different functions of the business.

In engineering company, the cost of manufacturing holds a significant place and is considered as the most complete measure of products manufacturability, because it foresees the expenditures that are linked with product manufacturing. The process of cost estimations highly depends on a detailed layout of the various steps involve in the process, including manufacturing sequence; equipments; labor; and tooling needed to manufacture a specific item. Therefore, in order to competently produce engineering products our company considers manufacturing cost, and in order to estimate the costs related with manufacturing we use Activity Based Costing technique. Since, Clothes Drying Rack is our product; our company uses ABC costing system to estimate the cost of its manufacturing while considering various other business functions. This costing method results in cost estimations by routing parts through our production system and identifies the actual cost of manufacturing Clothes Drying Rack, while representing and taking in to account every single aspect and breaking down all of the overhead expenses involved such as supplies, water, maintenance, depreciation, and others. Therefore, in the settings of Clothes Drying Rack manufacturing, where volume-unrelated activities are significant, ABC method facilitates our managers in understanding the relationship between operating activities that lead to the overhead cost and produces the products.

Figure 1: Activity Based Costing System

Thus, this costing techniques is used as it clearly represents the decomposition of each functional area into its component activities, and then grouped them together for revealing similarities of type or location. So, in our case, the consumption of the activities by the Clothes Drying Rack is measured by its associated cost drivers like the number of setups and the number of engineering change orders. Hence, Activity Based Costing provides sound information about operating activities that can be used to eradicate or reduce excessive ...