[Solved] Cost Plus Whatever Profit
The student must then post a reply of at least 150 words by 11:59 p.m. (ET) on the assigned Module: Week. The student must support the assertions with at least two scholarly citations in current APA
Koolco is a manufacturing company located in Hialeah Florida that designs and manufactures custom industrial walk-in freezers and walk-in coolers using a job costing system. At Koolco, a customer like Burger King speaks to one of the sales representatives and inquires about getting a walk-in freezer let us say. The Koolco sales rep. gets the dimensions of the unit needed as specified by the customer with all the temperature and capacity requirements plus any kind of customized cut-outs specific to the space and walls within the restaurant.
As the order is documented in a sales quote and the customer agrees to the terms, then a work order is created with a specific number and name to track all charges related to the cost of creating the Burger King walking freezer. Design engineers time, purchase orders, stock room parts, glue department’s time, assembly parts, refrigeration technician’s cost, and all other costs related to the work order or job order created for the Burger King job are charged to the job order number for that specific order; “If costs are going to be reported for the job, the cost accounting system must be able to record and track the costs incurred by the firm for it.” (Lannen et al., 2020, p. 260). In the end a job costing report is created where all the costs charged to the job are detailed along with the pre-determined overhead rates like electricity or managers salaries.
This job cost report can help the company how much it actually cost to build the custom walk-in freezer for Burger King and hopefully the sales price covers the cost plus whatever profit margin Koolco had estimated.
For a company that uses process costing, we will look at Beverage Corp. International (BCI) in Miami, FL. Because BCI manufactures Ritz, La Croix, Everfresh, and Crystal Bay drinking water among other drinks. When BCI runs the process of manufacturing Ritz sodas, they cannot just make 100 bottles and switch to Everfresh grape juice and make 100 cases. As described by Schwan et al. (2021), “Process cost accounting is a cost accounting system that calculates indirect costs of processes (activities) over quantitative reference parameters (drivers)…” (p. 3). When a flavor is being run, the whole plant is setup to run that flavor; from the syrup mixtures being used in the pipes and tanks, the carbonated pressure used, the temperature in the process and all other settings are specific to that process.
As a result, it is imperative that the process for Ritz soda is run completely and stored for bottling and distribution once it is started, then a cleanup process and re-calibration is needed for another flavor or process. To accumulate cost the company uses a process-base costing system where all the manufacturing costs are assigned to running a specific process. For instance, the plant costs to run an Everfresh process of 1,000 gallons would be accumulated by charging all time, materials, chemicals used, electrical overhead, and others to that 1,000 gallon process in order to capture its related cost.
EMJAC industries is an industrial kitchen equipment manufacturer located in Hialeah, FL; this company manufactures industrial kitchen counters, chef’s counters, hoods, and other oddball items; EMJAC is the parent company of Koolco. EMJAC also manufactures most of the parts that they end up using on their products like screws, bolts, nuts, hinges, corner guards, receptacle covers. We will look at the processing of manufacturing number 10 bolts for their stock room. Creating a work order to accumulate cost for each bolt would be inefficient since bolts are produced by quantities of thousands.
A more efficient way used by EMJAC to assign cost to the bolts manufactured is to have an activity-based costing system where each department has a pre-determined per hour rate and then each department charges that rate to the production run of 5,000 bolts for instance. “In this system, the cost allocation is based on the activities required to obtain the product.” (Niñerola et al., 2021, p. 2080). At the end, the costing report for the bolts would have the time spent at each department like engineering, notching machines, welding machines, polishing department, and quality control. Each department’s time then is multiplied by the predetermined departmental rate plus any overhead costs to obtain the cost of manufacturing a batch of 5,000 bolts.
All three companies reviewed are manufacturing companies making products, however the products that they manufacture are different not only in their nature but also in the way they are produced when it comes to the most efficient manner to assign cost to the product. The same concept of cost is used but he way cost is assigned has to be modified to achieve the best results overall. In essence, looking for the best way to achieve something or looking for the least harmful outcome is compatible with the teachings of the bible, and we should always try to do all we do for the glory of our lord regardless of who we are working for. “Whatever you do, work at it with all your heart, as working for the Lord, not for human masters” (Colossians 3:23, NIV).