Stellar Packaging Products and its primary customer, Estrella Coffee, are deciding on appropriate costing systems for their operations. Stellar Packaging Products’ manufacturing is conducted in batches, and many different applications are used as substrates, or packaging materials, upon which labeling is printed. These include paper, plastic, and metallic films. Estrella Coffee produces different types of coffee, however the roasting and grinding for all types of coffee beans prepared is essentially the same. Identify the type of costing system that would be appropriate for each of the companies. Include any cost benefit considerations of each system and the effect of technology in adopting a system.
For this discussion:
- Support your position.
- Select two peer posts and comment on the content of their posts. Does your selection differ from that of your peers? If so, how does that response contrast to your own?
Peer Post #1:
The company Stellar Packaging Products is producing items in batches, and is using many different packaging materials. This is different than the Estrella model. Estrella is making several versions of coffee, but ultimately the process to prepare this coffee is the same.
Stellar Packaging Products should be using job costing, which involves the accumulation of the costs of materials, labor, and overhead for a specific job. This approach is an excellent tool for tracing specific costs to individual jobs and examining them to see if the costs can be reduced in later jobs.
Estrella Coffee should utilize process costing for collecting and assigning manufacturing costs to the units produced. Processing cost is used when nearly identical units are mass produced.
Summary | Accounting Principles – AccountingTools. (n.d.). Retrieved May 19, 2016, from http://www.accountingtools.com/accounting-principles/
Peer Post #2:
When weighing the two forms of costing, Job-Order and Process, for a manufacturing company, you need to investigate the similarities and differences between these processes. The similarities are that the two systems are in place to accomplish the same goal, to assign manufacturing overhead, labor and materials to a product and assign a cost to that process (Garrison, Noreen & Brewer, 2015). The two processes also have similar flow processes and similar basic accounts that are used (Garrison et al, 2015). That is where the similarities end.
There are significant differences in the two processes and their uses. They include the type of product that is being manufactured, the size of the overall project, the record keeping involved and the industry type the process is being used for (Surbhi, 2015). The type of product that is being manufactured will help determine the costing method (Garrison, et al, 2015). If the product is highly specialized or made in small batches, job costing is a possible alternative (Surbhi, 2015). This process allows cost to be calculated by job; the larger or more diverse product would make this more difficult and need to be managed via process costing (Surbhi, 2015). A large project would be handled via process costing because it is suited to mass production industries; it is used when a company can not assign an individual job cost because of the continuous flow of units that are unique (Garrison et al, 2015). Job costing allows for specific record keeping due to the specialized nature of the job and the size of the industry that it is used in (Surbhi, 2015). Process costing does not allow for the level of specificity and it is used for larger scale projects (Garrison et al, 2015).
Stellar Packaging Products conducts their manufacturing in batches, which helps to allow for job costing. This can be broken down by job fairly simply by use of technology keeping track of the number of boxes that are being made. A separate job costing could be used for the labelling of the boxes and packing supplies. It appears that job costing is the best possible way to cost this type of business product.
Estrella Coffee conducts their manufacturing in bulk and share their grinding and roasting process across multiple lines of brands of coffee. This makes job costing very difficult to isolate into individual jobs for tracking (Garrison et al, 2015). The best option would be process costing for Estrella Coffee. The process costing would be much more cost effective due to the time it would take to try to isolate each job within the flow of this companies manufacturing (Garrison, 2015).
Garrison, G. H., Noreen, E. W., & Brewer, P. C. (2015). Managerial accounting (15th ed.). New York City, NY: McGraw-Hill Education.
Surbhi, S. (2015, June 24). Difference between job costing and process costing. Retrieved from http://keydifferences.com