Key Assignment Description from Week 4:
Develop a company and determine what it will produce and sell. The requirement for this company is that it be a high-end, special-order type of manufactured product. Complete the following in a Word document of 1,000 words:
Determine which of the costing systems discussed in this class will work best for your company. Explain why.Explain why those not chosen were not a good fit for your company. You must explain “why not chosen” for a minimum of 3 costing methods.
Assignment Guidelines:
I HAVE ATTACHED MY UNIT 4 INDIVIDUAL PROJECT THE ONLY NEW THINGS SHE IS ASKING IS WHAT IS UNDER THE ASSIGNMENT GUIDELINES I THINK!!!!
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Running head: U4IP
Unit 4 Individual Project
Cost Accounting
Professor Leanne Janis
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Abstract
ABC Apparel is the name of the company that specializes in the large scale production of
customized clothing. Main product that the will company offers is customized t-shirts. The
business offers a great opportunity for people to have their tops designed according to their needs
and taste. People with events that require customized clothing can therefore benefit from this
company among other potential consumers in the market. The business undertaken by the
company requires a great investment as well as creativity to beat the competition in the market.
The following paper will develop a list along with associated costs such as labor, materials, and
overheads. The total production cost will be determined so as to help in identifying the right
selling price for the product. The company aims at making a certain percentage of profit per
every piece sold. Calculations of how the selling price will be arrived at are also indicated in the
paper with an explanation of why it is a good sale price. The number of items to be sold to meet
the sale price will also be discussed. The costing system that works best for the company will be
discussed. Ethical considerations of the costing methods will also be discussed. The paper will
cover cost allocation that will show whether the company makes profits or losses.
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Introduction to Product
ABC Apparel Company is a company seeks to offer the market it serves customized tshirts that can be used in different events. Sportspersons, kids, adults, and professionals can all
use the product. Extensive catalog graphing images will be employed on the t-shirts as well as
the use of high quality technology of sublimation that will make them unique in the market. To
gain competitive advantage, innovation will be prioritized in the designing process as it is the
central business value of the venture. Several ways that will be used to produce the high-end tshirts include embroidery, screen, and digital printing. The production process will occur in a
rented space in a warehouse which will also be ideal for storage purposes. The business will have
a website where customers can view different customizations and make orders. Once the order
and a down-payment of 30% of the total purchase cost are received, production and
customization will be done. Products will be shipped to customers 2-7 days after placing an order
and it will be determined by complexity as well as the number of items required.
Product Inputs
Different equipment will be required to ensure production of high-end customized t-shirts.
Screen printing; cost per screen is $12
❖ Sublimation heat press machine $ 200
❖ Direct to Garment (DTG) production require a computer and a printer which both cost
$250
❖ T-shirt printing dye $ 6 per t-shirt (Variable cost)
❖ Salaries of employees (Variable cost)
❖ Management salary (Fixed cost)
❖ Rent of the building (Fixed cost)
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❖ Electricity (Variable cost)
Selling Price with Calculations (COGS + SG&A + markup)
Mark up is the difference between the selling price of a product and its cost. Cost of
goods sold refers to the total direct expenses incurred in production of the product or service.
Manufacture of a cotton t-shirt with accessories costs $3.00. The production processes factors in
labor, electricity, and dye or printing costs $18 per unit of all high-end t-shirts.
Selling, General and Administrative Expenses (SG&A) that will be factored in the cost price of
the product include:
Variable costs
Electricity $1 per unit
Labor per unit $8
Printing/customization materials $ 9 per unit
COGS is $21
The company aims at making a 15% markup on the sale of each unit.
Selling price therefore= x-21/21=0.15
Selling price = $24.15 per unit
Calculate Break Even Point
Breakeven point is a point where total costs of product are equal to total sales or revenue.
Breakeven point per unit is calculated by dividing total fixed costs by the price per unit less the
variable cost per unit.
Total fixed costs per month include:
Rent= $100
Salaries= $300
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Total variable costs amount to $ 21
Selling price= 24.5
Breakeven point= $400/ (24.15-21) = 126.98
Breakeven point (roundup) = 127 units
Determine Costing Method w/Explanation
As shown above, costs have been classified into two; variable and fixed costs. The
costing method is referred to as marginal costing. In marginal costing, variable costs are charge
to unit costs attributable to the relevant period. The costs are also written-off in full against the
contribution for that specific period. The main reason for using marginal costing is because it
makes it easy to determine and control costs of production. Fixed overheads are not charged to
the costs of production using this method thus eliminating the cost variance per unit (Labro,
2019). Marginal costing facilitates short term decision making as it allows a business to see the
viability of a business through the profits and therefore identify areas that can be changed to
realize desired results. It is also a simple and easy process that a business can adopt. Absorption
costing was not applied in this because it makes it difficult to conduct a cost volume analysis as
it takes into consideration fixed overheads involved in the manufacturing process. Absorption
costing is not an effective way of monitoring the profitability of a firm (Collis, & Hussey, 2017).
In this case, profitability is paramount to determine the viability of the business in its initial
stages of formation. Standard costing method was not also applied in this case because of its
complexity as well as the resources required to implement the costing method. Standard costing
involves identifying the differences between the actual costs of the goods produced and the costs
that have occurred for actual goods produced. It is mainly used to determine variances and which
is not the focus in this case.
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Possible Ethical Issues w/Costing Method
Cost accounting process involves identifying, measuring, and communicating the
economic information of a business for the main reason of decision making. Ethics plays a major
role in cost accounting correct identification, classification, and recording to costs to avoid
manipulation that can be aimed in understating or understating costs for different purposes.
Ethics ensures that factual information is provided to users and that correct pricing is done.
Ethics also help the management to understand how much it cost to run a business (Al-Hebry, &
Al-Matari, 2017). The right costing method to be applied should be consistent with the activities
of the business as well as its goals and objectives. Some of the essential features of a good
costing system include being tailor-made, simple and able to meet the requirements of a
business. Failure to meet the objectives of the business means that the costing method will not
provide reliable information and which in this case is unethical as it will mislead the users of the
information.
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References
Al-Hebry, A. A., & Al-Matari, E. M. (2017). A Critical Study of Cost Approaches in the
Accounting Thought: Conceptual Study. International Review of Management and
Marketing, 7(3), 105-112.
Collis, J., & Hussey, R. (2017). Cost and management accounting. London, U.K: Macmillan
International Higher Education.
Labro, E. (2019). Costing Systems. Foundations and Trends® in Accounting, 13(3-4), 267-404.
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