Discussion board postings.

1. In determining the cost that is associated with a product a few questions should be asked. Can the cost be tied directly to the product? Or, is the labor able to be traced to a specific product?  Direct materials are those that are identified with the production of a specific product and are easily traced to the product; their costs represent a significant part of the total product cost (Schneider, A., 2012). The materials that are actually used in the production of the product are how the cost are associated with the product. If a piece of plastic is used in the production of a product, then the cost of the plastic is a direct material and can be directly linked to the cost of the product. Direct labor can be specifically identified with a product in an economically feasible manner (Schneider, A., 2012). The labor that is directly used to construct the product or provide the service is the direct labor. So when determining whether cost or labor is direct or indirect, the main objective is to confirm if the cost can be directly linked to a product or service. Factory overhead, unlike direct materials and direct labor, cannot be requisitioned or measured directly as a cost of any particular job, production order, or service (Schneider, A., 2012).  Larger companies have a greater need to separate into different departments which all have separate cost. Overhead is created to cover the cost that cannot be successfully placed into a specific department.

Process costing is the cost of the entire process that creates identical products. Job order costing is used to allocate cost to specific or custom orders.

An example of a company’s manufacturing cost would be the rent spent on the company’s operating space. This cost could be divided as cost to all departments or into an overhead account.

References:

            Schneider, A., 2012,  Managerial accounting: Decision making for the service and manufacturing sectors  . San Diego, CA: Bridgepoint Education.

 2. Direct material costs are those that can be identified as belonging to a specific product (Schneider, 2012). Using the First Solar company as an example, direct material costs would include the materials like silicon/glass used to create the panels. Direct labor costs are similar in that they can be tied to the labor performed on a specific project (Schneider, 2012). For First Solar, this would be the salaries of the individuals who work directly on producing the panels in the manufacturing plant. Manufacturing overhead are the indirect costs associated with the production of a product or product line (Schneider, 2012). The article references mentions that First Solar has managed to cut costs in freight, recycling, and warranty costs (Trefis Team, 2014). These are not directly related to the production of the panels and would therefore be considered indirect manufacturing overhead.

In a job order costing system, costs are allocated by specific job (Schneider, 2012). If we continue using First Solar as an example, an order for 300 panels for company XYZ would be costed individually. Process costing on the other hand, is allocating costs by a group of tasks (process) (Schneider, 2012). Since solar panel production is going to be the same for most of the orders, First Solar could use process costing to allocate costs and not have to change the process for each job.

Schneider. (2012). Managerial accounting: Decision making for the service and manufacturing sectors. San Diego, CA: Bridgepoint Education.

Trefis Team. (2014, February 24). First Solar preview: Manufacturing costs, project order book in the spotlight. Forbes. Retrieved from http://www.forbes.com/sites/greatspeculations/2014/02/24/first-solar-preview-manufacturing-costs-project-order-book-in-the-spotlight/

3. Job order costing and Process costing have the same objective and that is to identify cost association. The difference between the two would be that job orders costing associates cost with the job and process costing collects cost by the department rather than by orders.  A job cost system identifies costs with individual jobs or products (Schneider, 2012). Job costing is most appropriate in environments where jobs or products are different from one another (Schneider, 2012). An example of an appropriate would be a company that does custom cabinetry. The cost would differ with each order of the product. Custom cabinets can be very expensive and depending on the materials used to complete the order will determine the cost. The types of wood, stain, etc. are factors that will differentiate the orders.

A process cost system identifies costs with individual departments for an interval of time, such as one month (Schneider, 2012). When items are indistinguishable from one another the process cost system should be used. The candy  company that manufactures candy bars would use a process cost system. The cost of making one candy bar would be the same as another because they are identical. The monthly cost of this process would best way to manage the  cost and production.

References:

Schneider, A., 2012, Managerial accounting: Decision making for the service and manufacturing sectors . San Diego, CA: Bridgepoint Education.

4. Job order costing and process costing are similar in that they both applied to a particular portion of manufacturing. Job order costing is done by job (or order) and process costing is done over a certain time period (Schneider, 2012). "In process cost systems, we identify materials, labor, and overhead costs with specific departments or operating centers. This differs from jobcost systems which identify costs with specific batches or customer orders" (Schneider, 2012, sect. 4.1).

Job order costing is based on a per job basis, which makes it appropriate for companies that use different processes to manufacture products. One example of this would be a company that produces furniture. If they received an order for five couches, two armoires, and one dresser, there are three different manufacturing processes in the order. Allocating the overhead costs between the three products is going to be more successful than trying to allocate costs according to overall factory usage because (for example) couches are much more labor intensive than the armoire is.

Process costing is more time period based (Schneider, 2012) and is most appropriate for companies that are producing the same, or similar, items to sell. A company that produces bagged chips could use process costing. Each potato chip type would be its own department with the same manufacturing process for each bag. Costs can be allocated to the department that does potato chips, corn chips, or cheese puffs respectively.

Schneider. (2012).  Managerial accounting: Decision making for the service and manufacturing sectors . San Diego, CA: Bridgepoint Education.