Production Costing

Response 1: Kyle Braselton (Discussion 1, Post 1)

There is a fairly accurate and detailed distinguishing of direct and indirect costs in manufacturing. Foremost, Kyle rightly determines the resources associated with production of goods and services as direct costs, direct labor and manufacturing overhead, after which he partitions them under direct and indirect costs. The trio is indeed important in determining the cost of goods sold (COGS) and valuing inventory under GAAP hence constitutes the costing of the product. There is also a correct observation that managers should exercise rationality and caution when assigning indirect costs. In essence, overheads have a high effect on profitability and how they are treated determines the net profit in the end due to the effect on COGS. For First Solar, job costing is apparently the best approach given its reliance on projects for 80% of the revenue. The uniqueness of such projects suggests the suitability of job costing over process costing. In the same way the need for detailed records and customer billing with respect to such projects reinforces the need for the approach.

Response 2: Selena Harris (Post 1, Discussion 2 Job Order Posting vs. Process Costing)

            I agree that the objective of both job and process costing is to compute the cost of a product. It is also true that job costing is used where products are different from one another and as such entail different “jobs” while process costing is appropriate where the products in question are standardized (Schneider, 2012). Job costing can however be used for standardized products that are released in batches, and not necessarily unique items as Selena posits. An equally important distinction that was missed is the cost accumulation procedure, whereas job costing focuses on the cost of each job separately and process costing on its part dwells on the costs incurred by departments/processes in coming up with the product. The question arising from the two approaches is: Which costing model best fits a diverse company with both standard and unique products?

Response 3: Selena (Discussion 1, post 2 Product Costs)

            The discussion makes an important point that distinguishing direct costs in the context of manufacturing can be quite easy. This is in relation to products such as earphones and other electronics whose majority of the costing falls on the direct category. A simple economic tracing activity can map all direct costs while segregating the minor indirect ones (Schneider, 2012). On the other hand, the use of process costing, as discussed, is quite straightforward as it only factors departments/ units involved in the manufacturing of the product. A question emerging from this discussion is: Is there a solid framework for distinguishing all direct costs from indirect ones regardless of product type?

Response 4: Anthony Richardson (Discussion 2, Post 2)

            There is a clear statement of difference between job order costing and process costing. While job order costing factors costs allocated to specific jobs, process costing concerns mass production of similar goods (Schneider, 2012). This makes sense as costs have to be considered independently with respect to each job if products are unique given that each product has its own requirements. In situations where requirements are the same, it makes sense to examine processes/units and their respective costs. This is a fundamental difference between the two accounting frameworks from which others build. An emerging question is: Which approach offers the best accounting by comparison?

References

Schneider, A. (2012). Managerial accounting: Decision making for the service and manufacturing sectors [Electronic version]. Retrieved from https://ashford.content.edu on 12^th August 2017.