UNIT 4 – Cost Accounting in Supply Chains

Question 1

Product costing defined: What are its purposes?

Answer 1

Methods used for assigning costs a specific product/ service. Purposes:

• Making pricing decisions
• Determining product mix: width, length,depth, consistency.
• Determining inventory values
• Reimbursement (reembolso) under government contracts: costs overview for authorities
• Benchmarking and performance measurement: assess of performance of a product for improvement

Question 2

What are the Product costing methods?

Answer 2

• Number of product types: one, several
• Degree of product homogeneity: Uniform product (Energy, cement), Variants of same product (metal sheet), Different (phones), Individual (Buildings), Joint (Gasoline).
• Production processes: mass production, variety, batch, job shop, joint production
• Costing method: Process Costing without/ with equivalence coefficient, Job order costing, Joint product costing.

Question 3

Process costing without equiv. coefficient: When it is this method more appropiate?

Answer 3

: it is most appropriate when a large quantity of identical units of output is produced in a given period and costs can simply be averaged across output units.

Question 4

Equivalence coeff. Costing

(Process costing with equivalence coeff.): When is this method more appropriate?

Answer 4

it is most appropriate when the units of output are not identical but still relatively similar to each other, i.e. same main inputs, production process at least very similar. If one variant for roof tile is 10% heavier, than it will require 10% more raw material and work.

Question 5

Job order costing

Answer 5

it is applicable for company with different products, different resources, production process, inventories fluctuate over time. This system distinguishes (in)direct costs.
We distinguish four variations based only on how the allocation of indirect costs is performed? Simple job order, extended job order, department, machine hour-based costing.

Question 6

Joint product costing: Two methods

Answer 6

1. Constant gross margin method: it assumes that all joint products have the same profitability and allocates joint costs in proportion to revenues, thus all joint products show the same gross margin.
2. Residual value method: it assumes that sub-product costs match revenues, i.e. gross margin is zero. The remaining joint costs are allocated to the main product. Profit is then due to main product.

Question 7

What are the tasks of Cost Accounting in SC?

Answer 7

Cost accounting info across supply chain partners is required for a multitude of tasks:

1. Accepting a job/ an order: total cost across partners? Profitable? Worth it?
2. Allocating tasks among SC partners: Who is responsible for this and in the most efficient way?
3. Monitoring performance of SC partners: contribution of each partner to the overall?

Question 8

What are the problems in Cost accounting in SC?

Answer 8

1. Standardization and harmonization: Cost acc. Info from partner systems can be properly integrated only, if it is clear how to interpret the data. SC partner must standardize and harmonize their systems as much as possible.
2. Aggregation and consolidation: it need to be determined at the network level. This requires aggregation and consolidation of individual firm’s data into a consistent set of SC-related data.
3. Communication: Cost data come from partner firm’ system. System and processes have to be stablished to determine how and what is exchanged between partners.

Question 9

Isolated and uncoordinated costs accounting systems between SC partners

Answer 9

leads to misleading costs info and to wrong/ suboptimal decisions of SC partners.
Ex. 1: false cost behaviour info: if customer cancels purchase, costs remains.
Ex. 2: false cost structure info: if customer perceives purchased product as direct only, then true cost structure is blurred (difuminado) further down in the value chain.
Ex. 3: double counting of costs: resource is consumed once only, but counted several times as cost
Ex. 4: no clear distinction between SC cost and non-SC cost: if manufacturer’s allocation rates are based on total business volume.
–> Therefore, the perfect SC cost accounting system: does not exist!

Question 10

Aligning product costing system

Answer 10

• Cost type accounting: Standardize charts of accounts and find common cost terms, e.g. logistic cost.
• Cost centre acc.: Establish coordinated cost centre structures for shared tasks and functions.
• Product costing: Harmonize product classifications and product terminology and agree on shared system of overhead cost allocation.