Question

You have learned about various types of costs, imagine what costs might be associated with this company and classify them.  You should be able to define and list some product costs and some period costs.  Define the elements of manufacturing costs and then list some particular costs that you think would be included in manufacturing costs (be specific about what type of manufacturing costs they would be) in a winery.  Identify which of these costs would be direct and indirect and why.  You have learned about job costing.  Please explain how job costing would apply to a winery and why it would be an appropriate way to handle costs.  What might be an appropriate allocation base and why?  Imagine that you are working in the winery utilizing your own major (examples: marketing, operations management, HR, Finance, accounting).  If you are an accounting major, how you as an accountant use the information you have described above to help the organization as a whole?  For all others, please describe what position you would hold in this company and how you would use the information produced by the accounting office in your job at the company.

Answer 1

A) Different types of costs in a company

Direct Cost: Costs whixh can be identified with and allocated directly to cost units.

Indirect cost: costs which cannot be identified with and allocated but can only be apportioned to cost unit.

Fixed cost: costs which do not change with the number of goods produced by the company.

Variable Cost: costs which fluctuates with the number of goods reduced by a company.

Operating Cost: Costs which is associated with everyday transaction of business.

Product cost: costs that are associated with the output and the used to value the inventory.

Period cost : Costa written off as expense in the period in which is incurred.

Sunk cost: cost incurred in the past and has no effect in the future decision making.

Opportunity cost: the value of a benefit sacrificed in favour of an alternative course of action

Out of stock cost : cost incurred due to stock shortage

Shutdown stock : cost which will incurre even after shutting down the plant

Historical cost : cost which are ascertained after incurred

Marginal cost : additional cost incurred for the production of an additional unit.

Research cost : cost of searching for new improved product.

Normal cost : cost which is normally incurred at a given level of output

Abnormal cost : cost which is not normally incurred a given level of output

Avoidable cost : cost which can be avoided as a particular product or department with which they are related is discontinued

Unavoidable cost : cost which cannot be awarded with the discontinuation of a product or department

Explicit cost : cost involving immediate payment of cash

Implicit cost : cost which do not involving immediate payment of cash

B) Product Cost and Period Cost

Product Costs

Cost of raw materials

Wages on labour

Production overheads

rent on factory etc.

Period Costs

Selling expenses

Advertising expenses

Travelling expenses

Transportation expenses

Commissions

Deppreciation expenses etcetc

C) i) Elements in Manufacturing Costs

direct materials

direct labours

overheads

ii) Elements of manufacturing costs in a winery

Director Materials : fruits for making wine

Direct labours: wages for labours working in the winery

Overhead: i) fixed overhead : factory rent, Electricity, depreciation on wine machines etc.

ii) variable overhead : lighting, repairs and maintanance of machinery etc.

D) Job Costing to winery.

Job costing is a costing technique design to help to track the cost of individual projects or jobs. Under job costing, cost is assigned for each job or work order. It would be easy for a winery to maintain job costing the help to identify each job for cost accumulation is the product is manufactured as per customer specification.

E) Approprate base of Allocation

The three most common allocation bases are direct labor hours, direct labor costs, and machine hours.

F) As a cost accountant of the winery, I would use the above information to determine the expenditures inorder to ascertine the production cost of the winery for the particular period of time. It also help to track the cost and the movement of the wine inventor it throughout the wine naking process.