Acc 550 - Cost Accounting - Final Project

Alternative Costing Method

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It is true to state that there are various costing methods that are available for the companies in the economy to implement. However, as the company expands its operations, it is always essential that it considers an alternate costing method that will make it benefit more from its operations in the economy. The alternative costing method that could benefit this company is the proper implementation of the process costing. It involves the accumulation of material, labor, and overhead costs across the entire departments with the total production costs then they are allocated to individual units. It is essential for the company to apply the method as it works well when there is the production of same products in the company. It is a method that can be sustained in the long run since the firm mainly deals in the production of umbrellas and no any other product.

The key characteristics of the system are that it is easier to apply, especially when the company deals with the production of similar products in the market. It will be easier for the management accountants to conduct their duties as they take the entire number of goods leaving the procedure and get the quotient with the total costs of processing. It creates a simple average cost for every item manufactured in the company (Rich, 2012). The process is also used because it is flexible. It implies that the company can refine its process by merely adding or removing the necessary process. It makes the operations in the firm to be much easier as compared to when an alternative costing system was applied.

It is prudent to acknowledge that the company needs to adopt this alternative costing method in its operations. It is because it will make the operations in the firm to be conducted in an easier way. The volume of production recorded in the firm will increase tremendously, and this will be essential for the expansion of the operations of the firm. The volume of sales will increase, and the profit margin recorded by the firm will equally increase. It also recognizes that the overhead costs are neither related to the production costs nor the sales volume. It, therefore, provides a better insight into the causes of overhead costs in the company and helps to find the means to minimize the costs. The reduction in the overhead costs implies that the firm will increase its revenue, and this provides room for the expansion of the company (Nowotny et al., 1989).

The method also needs to be adopted by the company as it will provide a more accurate cost per unit in the operations of the firm. The move will lead to the improvement in the pricing of the umbrellas produced by the firm. It will equally lead to the improvement in the management performance in the company. Also, the sales strategy that the company will adopt in the market will improve, and this will result in a better volume of sales realized by the company. The decisions made regarding the operations of the firm will equally increase as a result of the adoption of the method. It is because the cost per unit in the company is accurate and, therefore, leads to making more precise decisions that will make the company progress in its operations. It will also help the business to figure out the realistic costs as opposed to mere projections.

References

Nowotny, K., Smith, D. B., & Trebing, H. M. (1989). Public Utility Regulation: The Economic and Social Control of Industry. Dordrecht: Springer Netherlands.

Rich, J. S. (2012). Cornerstones of Financial & managerial accounting. Mason, OH: South-Western/Cengage Learning.