In your replies, demonstrate analysis, synthesis of all course materials, tact, and insight. For each
reply, reference the textbooks, at least 2 journal articles, and the correlated thread. Opinion is
worth little unless it is supported by quotes and/or paraphrases from the textbooks and
professional journals.
Submit a meaningful reply of 350-400 words to a classmate’s thread.
BUSI 601
Discussion Assignment Instructions
Submit a meaningful reply of 350-400 words to a classmate’s thread.
In your replies, demonstrate analysis, synthesis of all course materials, tact, and insight. For each reply, reference the textbooks, at least 2 journal articles, and the correlated thread. Opinion is worth little unless it is supported by quotes and/or paraphrases from the textbooks and professional journals.
Adhere to current APA format in all posts. Note that management techniques must not be capitalized. Consult the grading rubrics to see how you will be graded.
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Reply to Student 1 :
Cost Estimation and Profit Planning in Manufacturing: Job Costing vs. Process Costing
Navigating the intricate landscape of cost estimation and profit planning in manufacturing involves careful consideration of various accounting systems. This discourse delves into the nuances of job costing and process costing, two pivotal management accounting techniques, drawing insights from both scholarly articles and fundamental concepts outlined in our textbook.
Job costing system:
Job costing utilizes a system of several accounts to meticulously control the flow of product costs. Direct materials costs, direct labor costs, and actual factory overhead costs are the key components in this detailed accounting approach (Blocher, 2022). This approach is particularly suited for industries where each product or service is unique and tailored to customer specifications. Jobs are treated as distinct entities, with a specific focus on tracking the costs associated with each job or project, in service industries such as advertising agencies; construction companies; hospitals; repair shops; and consulting, architecture, accounting, and law firms (Blocher, 2022). In alignment with our textbook and the insights from the article by Stefan Schaltegger, Katherine L. Christ, Julius Wenzig, Roger L. Burritt (2022), published in the International Journal of Management Reviews, job costing in custom manufacturing is underscored as crucial. The study emphasizes how meticulous cost tracking enhances decision-making processes in unique production environments. Specifically, the article supports job costing by highlighting its applicability in capturing the diverse costs associated with customized production, providing a comprehensive understanding of the financial aspects related to each job. According to Luke 16:10 NIV “Whoever can be trusted with very little can also be trusted with much, and whoever is dishonest with very little will also be dishonest with much.” Each job, in this context, becomes a stewardship responsibility.
Examples from companies in community:
1. "Woodworks By Stan LLC" (Custom Furniture Manufacturer):
· Characteristics: Specializes in crafting bespoke furniture, with each piece uniquely tailored to customer preferences.
· Job Costing: Enables precise tracking of materials, labor, and overhead costs for each custom furniture order.
2. "RSP Architects Ltd" (Architectural Design Firm):
· Characteristics: Engages in customized architectural projects tailored to meet client specifications.
· Job Costing: Accurately monitors costs related to designing and overseeing each architectural project individually.
Process costing system:
Process costing, as outlined in our textbook, employs methods such as the weighted-average method and the first-in, first-out (FIFO) method to calculate costs (Blocher, 2022). This system simplifies the allocation of costs in industries characterized by continuous, standardized production processes. Process costing is most effective in industries where products are standardized, and production processes involve a continuous flow of identical units. Costs are averaged over all units produced during a specific time period. Drawing insights from the article by Tariq Tawfeeq Yousif Alabdullah (2022), published in the International Journal of Industrial Engineering, the study investigates the link between independent managers, risk management committees, and companies' profitability. While independent managers may not significantly impact profitability, the study reveals a significant relationship between the risk management committee and metrics such as ROE and market share. This supports process costing by emphasizing the significance of cost efficiency and accuracy in standardized production settings. The article underscores the relevance of process costing in capturing costs uniformly over a continuous flow of production.
Examples from companies in community:
1. "BevSource" (Beverage Manufacturing Company):
· Characteristics: Engages in the mass production of standardized hard seltzer water and sodas products.
· Process Costing: Averages costs over all units of seltzer water and soda produced during a specific period, streamlining cost allocation.
2. "Cub Foods Bakery" (Bakery):
· Characteristics: Large-scale production of standardized bakery items like bread and pastries.
· Process Costing: Averages costs over all units of baked goods produced within a defined timeframe, facilitating efficient cost management.
In conclusion, the choice of a costing system significantly impacts cost estimation and profit planning. The insights from scholarly articles support the relevance and effectiveness of job costing and process costing in specific manufacturing contexts. Companies in my community, such as " Woodworks By Stan LLC," " RSP Architects Ltd," " BevSource," and " Cub Foods Bakery," provide practical examples of how these costing systems align with their respective manufacturing processes.
Reference:
Blocher, E. J., Juras, P. E., & Smith, S. D. (2022). Cost management: A strategic emphasis. McGraw-Hill.
Schaltegger, S., Christ, K. L., Wenzig, J., & Burritt, R. L. (2022, January 17). Corporate Sustainability Management Accounting … – wiley online library. Wiley. https://onlinelibrary.wiley.com/doi/10.1111/ijmr.12288
Yousif Alabdullah, T. T. (2022, February 17). Management Accounting Insight via a new perspective on risk management … https://www.inderscienceonline.com/doi/abs/10.1504/IJIE.2022.121752
Bible gateway passage: Luke 16:10 – new international version. Bible Gateway. (n.d.-b). https://www.biblegateway.com/passage/?search=Luke+16%3A10&version=NIV
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Reply to student #2:
In order to effectively control their production costs, fast-food restaurants such as Wendy's, McDonald's, Zaxby's, and Chick-fil-A work within the domain of cost accounting systems. From my researc, I found that effective cost management can provide businesses with a competitive advantage within the market. From reading, Resturant Financial Basics, I was able to determine when businesses manage their costs smartly, they can offer prices that compete well without sacrificing the quality of what they sell. This isn't just about drawing in more customers; it's also about growing and getting more of a foothold in the market, especially in industries where how much something costs really matters (Schmidgall et al., 2002). Because these companies food preparation procedures for their main menu items are uniform and continuous, these well-known chains primarily use a process costing methodology. The core of their business is providing similar and consistent culinary selections throughout their vast network of locations. Regardless of the place they visit, these franchises provide a consistent taste and quality that customers anticipate, whether it's the traditional burgers, fries, chicken sandwiches, or other popular products. These massive fast-food chains optimize their accounting procedures by dividing up the costs of labor, ingredients, packaging, and overheads among each unit sold, all within the framework of process costing. This careful process ensures a consistent product, following recipes and preparation methods to provide customers with a smooth experience. For example, McDonald's uses process costs for their signature foods, such as fries and Big Macs. In a similar vein, Chick-fil-A uses this technique to account for expenses related to its well-known chicken sandwiches. These businesses uphold their brand identity and consumer loyalty by using this method to ensure consistency in taste, portion size, and quality control.
Nevertheless, in addition to their normal menu selections, some fast-food businesses occasionally offer unique or seasonal products that depart from their regular fare. In these situations, they frequently turn to a job costing system in order to efficiently track and control expenses related to these special and ephemeral menu items. An instrumental resource that significantly contributed to enhancing my analysis, particularly regarding the diverse range of menu offerings across different companies, was the book titled "Principles of Food, Beverage, and Labor Cost Controls." This insightful book equips individuals with the necessary tools to uphold detailed sales and cost records, establish effective monitoring systems for ongoing operations, and accurately predict future expenses related to various food products. These products usually consist of speciality or promotional food items that highlight creative flavor combinations, inventive ingredients, or seasonal changes. For a limited time, Wendy's might, for example, launch a gourmet burger with unique toppings or sauces. Here, Wendy's is able to keep a close eye on the prices of this specific burger thanks to the application of job costing. These costs include those connected to specific ingredients, marketing materials, and the labor-intensive labor that goes into making the burger. In a similar vein, Zaxby's may introduce a special edition chicken entrée with unusual sides or sauces that set it apart from their standard menu. In these kinds of situations, Zaxby's can accurately estimate and control the costs related to this particular promotional meal by using job costing, which takes into account elements like special ingredients, packaging, and promotional charges. With process costing for regular menu items and job costing for special or promotional products, cost accounting approaches offer a strategic duality that enables these fast-food companies to reconcile cost-effectiveness with accommodating a wide range of consumer preferences. These chains keep a competitive edge by supplying consistent quality and innovating to respond to changing consumer tastes and preferences by utilizing these unique costing strategies. This complex method not only makes cost control easier, but it also forms the basis of their operational strategy in the fast-food market, which is highly competitive and dynamic.
The way these fast-food chains use various costing methods actually ties in with a biblical idea about adaptability and smart planning. Just like how they switch up their cost accounting methods to fit different menu items, showing they can be flexible in their business approach, the Bible talks about how it's crucial for people and businesses to adapt and plan wisely. It's a bit like what Proverbs 21:5 says, "Good planning and hard work lead to prosperity, but hasty shortcuts lead to poverty."Basically, these companies aren’t just managing costs; they're also reflecting qualities like being careful with resources, working smart, and making wise decisions. They use process costing for regular stuff and job costing for the special items, showing how they're responsible in managing their money. It's like connecting the dots between how they handle finances and what the Bible teaches about being wise and diligent in managing what you've got.
References:
Schmidgall, R. S., Hayes, D. K., & Ninemeier, J. D. (2002). Restaurant financial basics. John Wiley & Sons.
Dittmer, Paul. (2003). Principles of food, beverage, and labor cost controls (Seventh edition.). J. Wiley.
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Contemporary Management Techniques: The Management Accountant’s Response to the Contemporary Business Environment
LO 1-3
Explain the contemporary management techniques and how they are used in cost management to respond to the contemporary business environment.
Management accountants, guided by a strategic focus, have responded to the six changes in the contemporary business environment with 13 methods that are useful in implementing strategy in these dynamic times. The first 6 methods focus
directly on strategy implementation: the balanced scorecard and strategy map, value chain, activity-based costing and
management, business analytics, target costing, and life-cycle costing. The next 7 methods help to achieve strategy implementation through a focus on process improvement: benchmarking, business process improvement, total quality
management, lean accounting, the theory of constraints, sustainability, and enterprise risk management. Each of these
methods is covered in one or more of the chapters of the text.
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The Balanced Scorecard (BSC) and Strategy Map Strategic information using critical success factors provides a road map for the firm to use to chart its competitive course and serves as a benchmark for competitive success. Financial measures such as profitability reflect only a partial, and frequently
only a short-term, measure of the firm’s progress. Without strategic information, the firm is likely to stray from its
competitive course and to make strategically wrong product decisions—for example, choosing the wrong products or the wrong marketing and distribution methods.
To emphasize the importance of using strategic information, both financial and nonfinancial, accounting reports of a firm’s
performance are now often based on critical success factors in four different perspectives. One perspective is financial; the
other three are nonfinancial:
An accounting report based on the four perspectives is called a balanced scorecard (BSC). The concept of balance
captures the intent of broad coverage, financial and nonfinancial, of all factors that contribute to the firm’s success in achieving its strategic goals. The balanced scorecard provides a basis for a more complete analysis than is possible with
financial data alone. The use of the balanced scorecard is thus a critical ingredient of the overall approach that firms take to
become and remain competitive. An example of a balanced scorecard is shown in Exhibit 1.4.
EXHIBIT 1.4 The Balanced Scorecard: Financial and Nonfinancial Measures of Success
Financial Measures of Success Nonfinancial Measures of Success
Sales growth Customer Satisfaction
Earnings growth Market share and growth in market share
Dividend growth Customer service (e.g., based on number of complaints)
Bond and credit ratings On-time delivery
Cash flow Customer satisfaction (customer survey)
Increase in stock price Brand recognition (growth in market share)
Internal Processes
Product quality
Manufacturing productivity
Cycle time (the time from receipt of a customer’s order to delivery)
Product yield and reduction in waste
Learning and Growth
Competence of managers (education attained)
Morale and firmwide culture (employee survey)
Education and training (training hours)
Innovation (number of new products)
The strategy map is a diagram that links the various perspectives in a balanced scorecard. For many companies, high
achievement in the learning and growth perspective contributes directly to higher achievement in the internal process
1. Financial performance. Measures of profitability and market value, among others, as indicators of how well the firm satisfies its owners and shareholders.
2. Customer satisfaction. Measures of quality, service, and low cost, among others, as indicators of how well the firm satisfies
its customers.
3. Internal processes. Measures of the efficiency and effectiveness with which the firm produces the product or service.
4. Learning and growth. Measures of the firm’s ability to develop and utilize human resources to meet its strategic goals now
and into the future.
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perspective, which in turn causes greater achievement in the customer satisfaction perspective, which then produces the
desired financial performance. The strategy map is therefore a useful means in understanding how improvement in certain critical success factors contributes to other goals and to the ultimate financial results. We cover the balanced scorecard and
strategy map throughout the text, particularly in Chapters 2, 12, 18, and 20.
The Value Chain The value chain is an analysis tool organizations use to identify the specific steps required to provide a competitive product
or service to the customer. In particular, an analysis of the firm’s value chain helps management discover which steps or
activities are not competitive, where costs can be reduced, or which activity should be outsourced. Also, management can use the analysis to find ways to increase value for the customer at one or more steps of the value chain. For example, companies
such as General Electric, IBM, U-Haul, and Harley-Davidson have found greater overall profits by moving downstream in the
value chain to place a greater emphasis on high-value services and less emphasis on lower-margin manufactured products. A key idea of value-chain analysis is that the firm should carefully study each step in its operations to determine how each step
contributes to the firm’s profits and competitiveness. The value chain is covered in Chapters 2, 13, and 17.
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Activity-Based Costing and Management Many firms have found that they can improve planning, product costing, operational control, and management control by
using activity analysis to develop a detailed description of the specific activities performed in the firm’s operations. The
activity analysis provides the basis for activity-based costing and activity-based management. Activity-based costing (ABC) is
used to improve the accuracy of cost analysis by improving the tracing of costs to products or to individual customers. Activity-based management (ABM) uses activity analysis and activity-based costing to help managers improve the value of
products and services and increase the organization’s competitiveness. ABC and ABM are key strategic tools for many firms,
especially those with complex operations or diverse products and services. ABC and ABM are explained in Chapter 5 and then applied in several of the chapters that follow.
Business Analytics Business analytics (BA) (also called predictive analytics) is an approach to strategy implementation in which the
management accountant uses data to understand and analyze business performance. Business analytics often uses statistical
methods such as regression or correlation analysis to predict consumer behavior, measure customer satisfaction, or develop models for setting prices, among other uses. BA is best suited for companies that have a distinctive capability that can be
derived from measurable critical success factors. BA is similar to the BSC because it focuses on critical success factors; the
difference is that BA uses analytical tools to develop predictive models of core business processes.
Emerging key types of BA include blockchain and artificial intelligence. Blockchain is a technology that allows all
parties to a transaction to know with certainty what happened in that transaction (www.fool.com/investing/2018/01/10/the-ba sics-of-blockchain-technology-explained-in-p.aspx). Artificial intelligence seeks to build machines and software that act
intelligently (www.forbes.com/sites/cognitiveworld/2019/02/25/artificial-intelligence-hype-is-real/#52ce2b9525fa). BA is
covered in Chapter 8.
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Target Costing Target costing is a method that has resulted directly from the intensely competitive markets in many industries. Target costi
ng determines the desired cost for a product on the basis of a given competitive price, such that the product will earn a
desired profit. Cost is thus determined by price. The firm using target costing must often adopt strict cost reduction measures
or redesign the product or manufacturing process to meet the market price and remain profitable.
Target costing forces the firm to become more competitive, and, like benchmarking, it is a common strategic form of analysis in intensely competitive industries where even small price differences attract consumers to the lower-priced product. The
camera manufacturing industry is a good example of an industry where target costing is used. Camera manufacturers such as
Canon know the market price for each line of camera they manufacture, so they redesign the product (add/delete features, use less expensive parts and materials) and redesign the production process to get the manufacturing cost down to the
predetermined target cost. The automobile industry also uses target costing. Target costing is covered in Chapter 13.
Life-Cycle Costing Life-cycle costing is a method used to identify and monitor the costs of a product throughout its life cycle. The life cycle
consists of all steps from product design and purchase of materials to delivery and service of the finished product. The steps
typically include (1) research and development; (2) product design, including prototyping, target costing, and testing; (3) manufacturing, inspecting, packaging, and warehousing; (4) marketing, promotion, and distribution; and (5) sales and
service. Cost management has traditionally focused only on costs incurred at the third step, manufacturing. Thinking
strategically, management accountants now manage the product’s full life cycle of costs, including upstream (research and development, design) and downstream (marketing, sales and service) costs as well as manufacturing costs. This expanded
focus means careful attention to product design because design decisions lock in most subsequent life-cycle costs. See
Chapter 13 for coverage of life-cycle costing.
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Benchmarking Benchmarking is a process by which a firm identifies its critical success factors, studies the best practices of other firms (or other business units within a firm) for achieving these critical success factors, and then implements improvements in the
firm’s processes to match or beat the performance of those competitors. Benchmarking was first implemented by Xerox
Corporation in the late 1970s. Today, many firms use benchmarking. Some firms are recognized as leaders, and are therefore benchmarks, in selected areas—for example, Nordstrom in retailing, Ritz-Carlton in service, the 3M Company in
manufacturing, and Apple in innovation, among others.
Benchmarking efforts are facilitated today by cooperative networks of noncompeting firms that exchange benchmarking
information. For example, the International Benchmarking Clearinghouse (www.apqc.org) and the International Organization for Standardization (ISO) (www.iso.org) assist firms in strategic benchmarking.