Cost Estimation Essay, Research Paper
Generally Accepted Accounting Practice
The main purpose of searching for a new method to estimate cost if due to the erroneous practices of accounting. There is a wide recognition of this problem but most companies still have not gone to a different approach. The GAAP principles do not provide the kind of cost detail and information focus required in today’s capital intensive, automated, and complex manufacturing and distribution. It generates an erroneous and inverse relationship between computed product cost and current production volume. This is the major problem- the inverse relationship between production volume and inventory value because these indirect expenses are all fully charges to the current product. In periods of declining sales, the apparent cost of the product rises, bringing suggestions of price increases in the face of weak sales performance. In good sales periods, apparent cost of product declines, suggesting either a lowering of prices or higher profits. Neither inventory valuation reflects the true cost of manufacturing the product. The typical distribution an accrual accounting practice often distorts operating cost information and performance criteria to accommodate financial policy, management practice, and current tax law requirements. Some manufacturers even overproduce to absorb overhead in the false assumption that this reduces their product cost.
Many different methods have been tried to fix this inaccuracy, such as activity bases costing, machine labor costing, process costing, productive hour rate costing, life cycle costing, and technology accounting. All of these methods have common weaknesses. None of these methods isolate the definition of the cost of the product form the definition of the overall performance of the business. All of these techniques cause the apparent cost of the product to vary with volume yet manufacturing has done nothing different when volume increase or decrease.
Paradigm Shift
One of the major philosophical changes is the conversion of the costing base from the variables of materials, labor, and volume to the constant of time and time use of capital facilities in each operation. By allocating all indirect expenses to time use of facilities, indirect and general and administrative expense can be fully absorbed and the correct share of these costs can be precisely assigned to each product, past and operation independently from production volume.
The “Use Rate”
The “use rate” is a rental charge for the use of things. It is a vehicle for the collection and application of all period, indirect, burden, overhead and general and administrative costs into the product or operation on a level-by-level, operation by operation, time use of facility basis. Unused facility expense and overhead is not charged to the product. Some principles that the use rate includes that is extremely important is the following:
? Price s independent of cost
? Price is set by the market and competition
? Cost is a function of design and management skill
? Profit is the difference between price and cost and is the scoreboard of success
? Time is the only reliable element and it should be the basis for defining and managing all other aspects of the operation
? Cost should be allocated based upon the time use of facilities plus material costs at every operation and level of production.
? The flow of material and product is the flow of money
? Level by level control of the material and product flow through a process assures management of the control of the enterprise.
? All production costs must flow into the value of inventory (raw, WIP, finished goods) al all levels
? All production revenue comes from the disposal of inventory
? Overhead absorption variances, which result from capacity utilization variances or profit variances and not product, cost variances or manufacturing performance cost variances.
? The cost system, manufacturing management system and material management system should be tied together through a universal numerical bill of material and a matrix type part numbering and activity coding system.
Time Use of Facilities
The primary objectives of the cost system are to provide management with a reliable tool for measuring and managing the performance of the manufacturing and distribution operations. The actual cost of a product as compared to pre-manufactured costs estimates and market process is also determined. Another objective is to provide information for designers who design to cost and apply value-engineering principles in product development.
The time use of facilities corrects variable product valuation problem. It offers a better basis for allocating the actual accrued cost share of facilities, burden, overhead, and direct expenses to the product. The time use of labor, machine, and plant facilities provides a measureable and definable cost standard for each operation. These costs can be accrued into the product’s inventory valuation on the basis of operation time.
The time use of facilities and how it fits into he use rate calculation will no be explained. A use rate is calculated for each workstation. It includes all indirect, burden, and overhead costs, which are attributable to the workstation. It is charged to the product and operation just for the time used during the operation and is based on the standard annual hours of use of the workstation. The time use of facilities sue rate defines the impact of schedule or performance base under or over utilization of the facility. This is a variance and is an adjustment to profit. It adds charges to the labor cost for work cycle time of labor operation and total operation cost is added to the material cost to compute level by level inventory valuation at each step.
Level by Level Total Absorption
This is the complete allocation of indirect expenses to the product based on the bucket concept. This is the costed WIP inventory of each item attached with all elements of labor, material, burden, overhead, and G&A costs accumulated on a time use of facility basis. The basic principles of level by level total absorption is that each activity or performance element in a manufacturing, warehousing, transportation, or merchandising operation involves the use of facilities and equipment, the use of materials and supplies, the expenditure of labor, and the use of money. By using work measurement techniques, the direct and variable cost elements of labor, material, and supplies can be defined, computed, and predicted for each operation with a reasonable degree of accuracy. Indirect and overhead charges can be assigned to the costs of operation in direct and equitable proportion to their time contribution to each function or activity by applying a time use of facilities approach and a workstation use rate.
With this total absorption costing method is it possible to isolate cost of individual parts, item, and operations. One can quantify the impact of methods or product design and changes. The cost impact of capital facility and data control feedback improvements can be defined by comparing standard costs accumulated in the WIP inventory record and the actual costs accumulated. One can identify and promote higher margin products and services.
Differences
The primary differences between the conventional method and how the use right applies indirect and period costs to the product is that the use rate applies the capital investment burden (depreciation), manufacturing burden and overhead, indirect costs, general and administrative expense to a stable predictable measurement unit (square feet and time) on a time sue of facilities, total absorption, standard costs basis. Burden and overhead costs are usually fixes (nearly stable) and have not normally fluctuated with production volume, labor or material costs. This method uses that portion of the plant’s manufacturing capacity and operating time, which is scheduled and actually used to support the operation and the production schedule. An example of the difference between the conventional method and the use rate method: In a Just in Time environment, batch sizes have moved down and frequency of movement has gone up. The GAAP principle says that transportation and set up costs go up because frequency is going up. But the use rate method says that since there is no adding of labor, it is really the same since there should be no volume relation. If losing production of a non-bottleneck, really not losing anything.
Different Types of Labor
Direct labor is people who change the product’s condition, status, shape, packaging, appearance or function.
Indirect labor are people who logistically support, handle, move, inspect, control, set up, affects the product’s flow through the manufacturing process without changing the product itself. In use rate calculation, treated as overhead.
Burden labor are people who provide supporting supervision, clerical or administrative personnel, labor relations, maintenance, safety without direct product contact. Examples are department managers, supervisors, and engineers. Treated as general overhead in use rate calculation.
Manufacturing management labor are people like the vice president of manufacturing, MIS, inventory control, personnel, etc. Treated as overhead in use rate calculation.
Другие работы по теме:
College Admision Essay Research Paper Being accepted
College Admision Essay, Research Paper Being accepted into College would open up a lot of opportunities for my future. Ever since I was a child, I have been in awe about how computers operate. At the age of fifteen, I got a summer job at Fallon Clinic, doing computer repair and computer networking. Later I proceeded to build a computer out of spare parts, and from then on I have wanted to be a computer engineer.
Generally Accepted Auditing Standards Essay Research Paper
GENERALLY ACCEPTED AUDITING STANDARDSApril 10, 1996 Generally Accepted Auditing Standards are those guidelines which auditors must adhere to while conducting an audit of a company’s or government entity’s financial statements. It must also be stated in the audit report that the audit was conducted following Generally Accepted Auditing Standards.
Antigone Essay Research Paper Death by ConvictionIndividualists
Antigone Essay, Research Paper Death by Conviction Individualists are selfish! Individualists are willing to take any and all kinds of abuse for their cause. They will stand up for what they believe in no matter what the cost. Some are called heroes; some are called psychopaths. But all of them have no doubt whatsoever about their convictions.
Black Bear Essay Research Paper Matt MeaneyPeriod
Black Bear Essay, Research Paper Matt Meaney Period 6 Extra Credit 4/2/00 The presentation given on the black bears on April Second was generally to me at least too appeared almost fake. I didn’t understand how he says they wouldn’t attack you, and it’s just a bluff charge, when just this year a woman in Boonton was attacked as well as her dog by a black bear.
Afermative Action Essay Research Paper In times
Afermative Action Essay, Research Paper In times of today most topics of conversation generally have something to do with politics and hot political issues. Everything from abortion to gun control to affirmative action and that?s exactly what I am going to talk about, affirmative action. What exactly is affirmative action? According to Dr.
Eutrophication Essay Research Paper Eutrophication is the
Eutrophication Essay, Research Paper Eutrophication is the over growth of algae in water ecosystems where nutrients are usually limiting. Many fresh water systems are ‘oligotrophic’, meaning that the growth of primary producers (algae) is limited not by dissolved gas or light, but by nutrients such as nitrates and minerals.
Capital Punishment Essay Research Paper Capital PunishmentWhat
Capital Punishment Essay, Research Paper Capital Punishment What type of society kills its own people? The American culture?s morals have accepted the death penalty as a reasonable punishment. However, who gives us the power to determine when someone?s life should end. People who murder others should be punished and pay the price of their crime, but not killed.
Motivation Speech Essay Research Paper IV BROADCAST
Motivation Speech Essay, Research Paper IV. BROADCAST PROGRAMMING: BASIC LAW AND POLICY The First Amendment and federal law generally prohibit the FCC from censoring material in broadcasting. Stations choose the material they determine as best for their community. The FCC does not advise on artistic standards, formats, grammar or the quality of their programming.
Economics Of Sex Essay Research Paper This
Economics Of Sex Essay, Research Paper This mini-paper is to study how people of different moral standard choose their one-night-stand partners. At a late stage of this paper, I will state the limitations of this theory.
Lutheran And Protestantism Essay Research Paper GermanyLutheran
Lutheran And Protestantism Essay, Research Paper Germany Lutheran and Protestantism In 1517, an Augustinian friar named Martin Luther succeeded in single handedly challenging many otherwise generally accepted views of religion in Europe. With little more in mind than issuing a challenge in the form of a debate to anyone who believed in the system of Indulgences presented by Tetzel, Luther managed to provoke a long in the making revolt against the Catholic Church.
Jane Eyre Essay Research Paper Caretakers had
Jane Eyre Essay, Research Paper Caretakers had an important role in the renaissance and the Victorian period. Mainly women were accepted to be a caretaker while their class was usually a low one. Their duty changed from period to period, their class was not bound to be low, but still, it was lower than the person who hired them.
Aristophanes Lysistrata Essay Research Paper A Review
Aristophanes: Lysistrata Essay, Research Paper A Review of Lysistrata Lysistrata, a play written by Aristophanes, was first performed in 411 B.C. It portrays an arousing comedy of a plan to end the war between Athens and Sparta as proposed by an Athenian woman, Lysistrata. To do this, she holds a meeting among the women of Greece in an effort to convince them that men will succumb to peace as a result of sexual frustration.
Euthanasia In Australia Essay Research Paper What
Euthanasia In Australia Essay, Research Paper What is it and how is it performed?Euthanasia is the practice of ending a life so as to release an individual from an incurable disease or intolerable suffering. The term is sometimes used generally to refer to an easy or painless death. Voluntary euthanasia involves a request by the dying patient or that person’s legal representative.
North Carolina Essay Research Paper In 1891
North Carolina Essay, Research Paper In 1891 the University of North Carolina at Greensboro was founded by the state of North Carolina, only it was not called University of north Carolina at Greensboro, it was State Normal & Industrial School. The state founded this college to higher educate the women in the state of North Carolina.
Air Pollution And Government Itervention Essay Research
Paper It is generally accepted that the cause of air pollution is the ill-defined private property rights on air. But transaction costs matter too. Market is costly. After the defination of private property rights on air, it is very difficult, even impossible to charge the people who pollute air. The transaction costs of doing so is considerable.
Kuwait Essay Research Paper Kuwait seeking to
Kuwait Essay, Research Paper Kuwait, seeking to avoid looking like a puppet of outside powers, did not call on the United States or other non-Arab powers for support. For their part, the U.S. and other Western governments generally expected that at worst Iraq would seize some border area to intimidate Kuwait, so they avoided being pulled into the dispute.
Types Of Parents Essay Research Paper Protective
Types Of Parents Essay, Research Paper Protective parents are the easiest category of parents to spot. Most parents in this category illustrate an extreme sense of strictness through the use of several rules and harsh punishments. For instance, Mr. and Mrs. Gallop ground Jennifer from riding in a car because she was ten minutes late without notifying her parents first.
Hacking Essay Research Paper Hacking has been
Hacking Essay, Research Paper Hacking has been developed over the years to be unstoppable. Newcomers to the hacking community learn the rules by associating with established hackers. Hackers like to hack in order to impress each other.
Assuming No Pollution Explain Why A Road
Is Only An Example Of Market Failure When It Is Congested. Essay, Research Paper Assuming no pollution, explain why a road is only an example of market failure when it is congested.
Buffon
’s Needle Essay, Research Paper Buffon’s Needle Buffon’s Needle refers to a simple Monte Carlo method for the estimation of the value of pi, 3.14159265… The idea is very simple. Suppose you have a tabletop
Dvorak Keyboard Essay Research Paper The Dvorak
Dvorak Keyboard Essay, Research Paper The Dvorak keyboard layout has been slow to catch on due to lack of scientifically conclusive evidence that it is superior to the QWERTY sequence. The majority of positive test results seem to come from Dvorak himself, who had a financial and intellectual investment in his patent.
Cultural Diversity Essay Research Paper Cultural Diversity
Cultural Diversity Essay, Research Paper Cultural Diversity: Campus Climates and Classroom Instruction American Society has been and continues to become increasingly mixed, complex, and variegated in its cultural practices and ethnic make up. However, the state schools have fallen short of race goals established thirty-one years ago in a desegregation case now known as Geier v.
Geographical Information System Essay Research Paper GIS
Geographical Information System Essay, Research Paper GIS Geographical Information System originated in the 1960s. During the early days of the technology the use was limited to a small group of practicioners. It is a information technology which analizes, stores, and displays both spatial and non-spatial data.
Gffdg Essay Research Paper B A B
Gffdg Essay, Research Paper B A B paper is generally focused on a more particular problem or issue; it reveals that the author has gone through brainstorming
Internet PC
’s: Next Wave Or Nonsense? Essay, Research Paper Internet PC’s: Next Wave or Nonsense? Call them what you will: Internet appliances. Network terminals. The whole
Marijuana Essay Research Paper Marijuana also called
Marijuana Essay, Research Paper Marijuana (also called mary-jane, pot, grass, weed, doobey and reefer) is the most commonly used illegal street drug in North America. Marijuana is a depressant. It is one of the cheapest illegal drugs in the world. It is also one of the easiest drugs to get. Because of this it is one of the most dangerous drugs.
Accounting Essay Research Paper ABC is crucial
Accounting Essay, Research Paper ABC is crucial because it tells managers which products or services make or lose money – they usually don’t know. Traditional cost allocations often depict an unrealistic, inadequate view of profitability, sometimes distorted by hundreds of percent. In most cases, ABC is designed to provide profitability information for each segment of their product/service market matrix.
Persuasive Essay On gambling
” Essay, Research Paper Although many people believe that gambling is good clean fun, I believe that gambling will cost society more than it would benefit.
Disaster Recovery Essay Research Paper Windows on
Disaster Recovery Essay, Research Paper Windows on Management – Disaster Recovery in the New Information Age This window talks about some of the benefits of a recovery system for businesses with round the clock electronic commerce. If a disaster happens and these companies don’t have a recovery system, it can cause massive delays and that can lead to loss of business and profits.
Hitlers Germany Essay Research Paper One reason
Hitlers Germany Essay, Research Paper One reason the people of Germany accepted Hitler’s orders willingly and without question was beause it was what they wanted to hear. At the time the depression