RSM 222 Case Assignment
The chocolate industry is one with many players. There are many custom bar providers as well as big players within the industry. The direct result of that is very high rivalry between competitors within the industry. The internet provides customers with the ease of obtaining information about the various types of chocolate on offer from the many chocolate makers, and that will quite possibly lead to intense price competition between chocolate makers.
The indirect result of having many players in the industry is high buyer power. Potential customers have many choices, and are unlikely to show much loyalty towards any chocolate maker. D.C. faces ...view middle of the document...
C. previously ignored - for the final cost. This will enable them to price their products appropriately and avoid overpricing or eating into their profit margin.
There is also a need to obtain more information about the sales of their various chocolate product. Instead of just measuring their revenues, there is also a need to keep track of how many of each type of chocolate bars are sold during each period. This will allow them to accurately estimate or project how much of each type of chocolate they will likely have to produce during future time periods.
The costing information provided in the case do not state if the workers in the various departments work at a constant rate of 20.5 days a month and 8 hours a day, or simply just enough to meet the projected production level based upon the rate at which they can process the various types of chocolate bars. This extra piece of information is important and should be provided in order to compute costing information for the various types of chocolate accurately.
D.C. has many different types of costing systems available to them. It is important to evaluate each option in order to determine which would be the best fit for this small but growing chocolate factory. We shall consider the job-order costing system, the process costing system, the activity-based costing system, and the variable costing system.
D.C. may consider Job-order costing system to deal with each order they receive. Job-order costing is generally used when many different products are worked on during and produced each period. As D.C. produces many different types and sizes of chocolate bars each month, job order costing would allow them to trace costs of direct materials back to each order. By knowing the cost per order, D.C. can thus determine an effective price for each order/type of chocolate bar. However, job-order costing requires a separate job cost sheet for each order. This may be difficult and costly to implement since workers are working on multiple chocolates and orders at the same time. It may be hard for the employees to accurately determine the time they spend on each type of chocolate. However, if employees are able to accurately catalogue the number of hours they spend working on each order, the job-order costing system is a very attractive method for D.C. chocolates.
Another system D.C. may consider is the process costing system. This system is generally used by companies that produce many units of a single homogeneous product for long periods of time. Process costing would accumulate all the costs incurred by each department for the period and then divide it by the number of units produced during the period. This system does not appear to be very efficient for a company with a large array of different products. Different types of product will incur different costs; since this system averages out all costs incurred to all units produced, it may be misleading. Process...