PRODUCT COSTING SYSTEMS

Management Accounting - Business Report (Fresh Soups Heaven Limited)

Executive Summaryii

Introduction1

Discussion2

Part A - Calculations for Costing System3

Monthly Budgets (July 2011- June 2012)3

Sales Budget3

Production Budget4

Direct Material Cost5

Direct Manufacturing Labour Cost6

Manufacturing Overhead Costs6

Total Cost and Unit Cost for Each Product8

Plant Wide Costing8

Department Wide Costing9

ABC Costing9

Budgeted COGS and Income Statement10

Plant-wide Costing System10

Departmental Costing System11

ABC System12

Part B - Analytical Discussion13

Limitations of Each Costing Method14

Cost Variance and Range of Alternatives14

Conclusion15

References16

Appendix18

Appendix A18

Appendix B21

Appendix C24

Executive Summary

The paper evaluated different costing systems available to Fresh Soup Heaven Limited. In the light of the given scenario, the paper was divided into two parts. The part one provided all the relevant calculations and mechanism of cost accounting. These findings helped to compare the application and usefulness of each costing mechanism for Fresh Soup Heaven Limited. The second part of the paper was emphasised on critical assessment of each costing mechanism in order to highlight limitations and associated benefits of each option. In the light of the comparative analysis, the paper made recommendations, which were backed with critical assessment of the budgeted performance of the company for the FY 2012.

Key Words: different costing systems, Fresh Soup Heaven Limited, relevant calculations, critical assessment, limitations, associated benefits, comparative analysis, recommendations, budgeted performance

Management Accounting - Business Report (Fresh Soups Heaven Limited)

Introduction

The paper aims to evaluate and identify the best costing mechanism for Fresh Soups Heavens. In order to conduct comprehensive analysis of traditional and advanced costing mechanisms, the paper assesses the budgeted costing information of the company under each identified option. The paper divides the required information into two parts. The part one provides detailed calculations of budgeted costs under each option of costing system. In addition to this, the paper discusses Fresh Soups Heaven Ltd's monthly performance through sales and production budgets. The paper provides unit cost and total cost of each manufactured product under the three defined mechanisms of costing. Moreover, the paper prepares budgeted statement of COGS and Profit and Loss account for the fiscal year 2011-2012.

Second part the paper sheds light on the critical appraisal of each costing mechanism in order to make effective recommendations. The paper conducts comparative study of cost efficiencies or cost increments observed under each costing method. Additionally, the paper highlights limitations of adopting each of the identified methods and their possible impact on the recommendations. Finally, the paper provides conclusion on the overall understanding of the product costing system.

Discussion

Fresh Soups Heaven is a Fast Manufacturing Consumer Goods (FMCG) who manufactures soups for restaurants. Analysis of the case study shows that the company offers two types of soups including Delicious Soup (DS) and Tasty Soup (TS). Budgeted assessment of the company for the FY 2011-2012 shows sales capacity of 72, 000 annual units, where the sales accomplishment is distributed via seasonal demand, as illustrated by figure 1.

Figure 1: Sales Distribution Pattern of Fresh Soup Heaven Limited (Source: Student Material)

As of recent statistics, Fresh Soup Heaven Limited is incorporating plant-wise costing mechanism. Product costing assessment has been made via three costing mechanism including traditional and ...