Week 6 DiscussionCOLLAPSE
Your team has been assigned to design and launch of a new product or service. This could be an external product for sale or an internal service to support other departments. As you prepare for your first team meeting, you know that identifying and classifying costs will be an essential part of the project.
- Briefly explain what the new offering is (Note: this can be hypothetical or based on your current role at your company; you should not share any proprietary information)
- Identify and describe one fixed cost and one variable cost in your department, and explain whether they are controllable or non-controllable.
- Identify whether these costs are traceable to direct materials, direct labor, or overhead.
– OR –
Consider your current organization, describe how costing is used or could be used to better understand the financial breakdown of products and/or services delivered. Would this information support you in your current role and/or aspired-to role? Have you seen instances where costing is not used effectively or could be better leveraged?
Post your initial response by Wednesday, midnight of your time zone, and reply to at least 2 of your classmates’ initial posts by Sunday, midnight of your time zone.
1st person to respond to
Christopher Berner RE: Week 6 DiscussionCOLLAPSE
Professor and Class,
For this weeks discussion, I have chosen to write about option 2 and the company that I currently work for, Hahn Auto Restoration. We are an antique car restoration company with 12 employees with all different types of automotive skills. The restoration services that we provide are full & partial restoration, repairs and 3D scanning capabilities.
To break our company down with fixed costs, our biggest expenses are: rent (we are actually in the process of purchasing the land and building), insurance for the building and cars, employees salaries, utilities (can also be variable), and depreciation. Our two biggest expenses are the insurance and salaries.
Direct Materials: This is something that we have to be very careful with. We use a lot of different types of materials during the cost of a restoration with prices of those materials changing often. Examples of materials that we use are sanding paper, body filler, tape, wax and grease remover, thinner, brushes, cutting wheels and grinding disks, just to name a few. Prices for these materials have been fluctuating over the pst year due to inflation and supply issues. We have not used this area of cost accounting very well. We have had set prices of these products built into the system and were not updated properly so we were charging less than we were purchasing them for and loosing money.
I would say that a standard costing method would work best for our company because standard costs, rather than actual costs, are used in accounting for materials, labor, and even overhead (1). Materials, labor and overhead are our biggest expenses and it is something that we need to always be on top of.
1. Gene Siciliano. Finance for Nonfinancial Managers, Second Edition (Briefcase Books Series). Chapter 8
2nd person to respond to
RE: Week 6 Discussion COLLAPSE
Hi Professor & Classmates,
Your team has been assigned to design and launch of a new product or service. This could be an external product for sale or an internal service to support other departments. As you prepare for your first team meeting, you know that identifying and classifying costs will be essential for the project.
Briefly explain what the new offering is (Note: this can be hypothetical or based on your current role at your company; you should not share any proprietary information);
Team Mojo: Food Truck Services (Mobile) offering exotic breakfast menu items for Spring Breakers @ Deerfield Beach Boardwalk, Florida: Egg/Bacon/Cheese naan, Malaysian kaya toast, Japanese egg Sandos.
Identify and describe one fixed and variable cost in your department and explain whether they are controllable or non-controllable.
- Fixed Cost: We understand from this week’s accounting terminology that fixed costs do not change with an increase or decrease in the number of goods or services produced. Permits are one fixed cost associated with operations. Permits are controllable in most cases but can also be non-controllable as this depends on local ordinances that can change without notice.
- Variable Cost: Girsch-Bock explained that variable costs are all related to production levels (1); in the case of a food truck, these types of costs are applicable when the truck is driven. An example is Fuel; traveling from Fort Lauderdale daily to Deerfield is a 20 mins drive. The cost is non-controllable as it is dependent on the supply chain, but more importantly, cost of oil.
Identify whether these costs are traceable to direct materials, direct labor, or overhead.
While the cost of Permits is not traceable to direct materials, it is traceable to direct labor and overhead, as someone of the staff has to put in the work to apply both office and person at the government entity. On the other hand, Fuel is traceable to overhead as these costs fluctuate and have to be taken into account.
1. Girsch-Bock. 2020. Fixed Cost vs. Variable Cost: How to Tell the Difference. Retrieved from: Fixed Cost vs. Variable Cost: What’s the Difference? | The Blueprint (fool.com)