Question

Drive All changes saved in Add-ons Help BIUA 11 Arial Week 2: Business Partner Group Discussion- Cost Classification %3D No unread replies. 3. 3 replies. Your instructor will create business partner groups by Sunday of Week 1. 1. Working with your business partner(s), create a new manufacturing business, including a name and location. In your initial post, present the following information for your business: o Name of business o Type of business o Location of business o Determine a product to manufacture o Cost classification - Determine the individual costs that your business would incur related to: (1) fixed, (2) variable, (3) direct, (4) indirect, (5) manufacturing overhead, (6) period, and (7) product o Include justification of cost classifications 2. When responding to your designated group for this week, evaluate the business and the information included in their post. Consider o The completeness of the information 21 MacBook Pro The I'm !!

Answer 1

Company name - Sinolex

Company Location - Ontario

Company Product - PVC pipe manufacturing

Manufacturing unit – relates to PVC Pipe manufacturing Business .

Classification of cost in case of PVC Pipe manufacturing business are as follows:

Manufacturing cost / Direct cost – In relates to manufacturing Pipe , we need to consider following cost under above head – a) material cost ( most important input cost ) b) Employee benefit expenses ( another important and direct cost ) to run the business . Normally Employee cost we need to divide into two parts – PART of employees are directly connected with manufacturing production , considered those employee benefit expenses under “ direct cost “ and other employees who are not directly connect with production and behave as Overhead , support cost – treat them as Indirect cost , fixed overhead cost

Manufacturing overhead cost – We need to classified indirect labour cost like supervisor, material handling team if any

In case of depreciation cost – we need to classified under two broad head – one is treated as manufacturing Overhead and part of indirect product cost and balance part consider as Non Product cost .

Interest cost – this is not direct cost but treated as period cost which is require to disclose when company will borrow money and finance form outsider .

To run above business , we need to incur certain period cost like – Selling expenses, Travelling cost . Travel cost also divided into two parts – indirect cost and some part relates to period cost

Certain cost are absolutely fixed on nature- like rent. Electricity , payment of loan , Salaries

For manufacturing company following costs are play major role while taking any decision:

1. Purchase of Traded goods – Direct cost – charged to Income statement
2. Change in movement of Inventory of finished goods , stock in trade and work in rogress – this is one of the major direct cost , which create major impact on Margin calculation

To run company, we used to incur certain other cost but they are not category as direct cost like

1. Consumption of stores and spares
2. Power and fuel
3. Any fright cost
4. Advertisement and sales promotion – part of period cost
5. Any legal and professional charges

Any bad dent relates to collection challenge

2. Cost classification as mentioned above definitely making sense . To rum manufacturing company we need to cover all above cost and control all level of cost to derive correct Operating Margin as well as net Profit of the company .

To run business, we need to first control on Direct cost , like material input cost, input pricing challenge , movement of Inventory , consumption movement and impact on margin of the product . We need to do more deep dive in relates to product level . We need to captured product level dirct cost to determined product wise margin .

Every cost has own uniqueness . All direct cost as mentioned above is most important to capture or determined “ Operating Margin “ . certain cost which are not direct but cover under period cost like depreciation , amortization , Interest cost to derived net profit of the company .

If company is too much depended on loan ( outside finance ) and too much capex , which will definitely disturb bottom line of the company .

To derived correct margin , Company need to review cost, allocation of cost , cost mix product wise and control over cost to avoid any cost overrun .