The difference in figures is due to the effects of transition costs and its general effects in products. The company changes based on production of the new product has large quantity of overheads. Computer systems and support expenses. The overheads to the new production of pens are significantly expensive as accordance to the ABC model, which is the true reflection of the determination of costs.
The ABC analysis business term involves A items, a very complicated recording system of control and accurate record B items, a less tight good record which is fairly controlled and the C items that have marginal importance though have simple controls which have minimal records. Every business can astonishingly benefit from appropriate applying an effective formula for pricing its products and their set terms of purchase. On the same note, determination of a fair price and reasonable trade ground that ensures fair opportunities to the traders is essential. Although a cost analysis is a complicated procedure, a thorough negotiation may be applicable to assure the best pricing for the goods and services.
The product costs are usually very different from sales price as the product cost entails calculation on a single product. Determination of the requirements to produce a specific number of units of a product and services to reduce congestions should there be a any. It is important to consider every little thing that might be required for the production of an extra good.
- Estimation of the monetary values for different determinants of the production costs. Through the entire process of production, just a little of the entire labor costs or machines and electricity used will prove a little hard to estimate.
- Addition of monetary values of the goods cost determinant. Once you have converted the monetary values of the determinant, do the addition of all of them and the answer shall be the total summation of the product cost.
- Product costing is an important part of controlling the module. It is used to controlling the internal costs of the materials and the production for profitable and the entire management accounting. The final cost is for understanding the basics used in product costing is actual cost. These are determined through the purchase prices, confirmed actual quantities and actual expenses.
If the company follows the advice, the production unit will shoot up. The company upon using these strategies would use the company’s resources well. This is because there will be equal distribution of resource. When resources are utilized well the wastage will be minimized. Therefore, overhead costs will reduce as the company utilizes resources well. The company’s resources are scarce and this needs maximum allocation so that all the resources are equally distributed. It ensures that there are no idle resources at any one time of production. All the resources are well utilized at every stage of production. The recording of those resources, which are not in use, also takes place ensure that those resources are well utilized stored for later use. The company raw materials such as ink to be used in production of the pens are recorded and the company keeps such records in a safe place. These records are kept well and incase the company loses such products the records will help the management to know the number of the materials lost and thus easy to retrieve such materials.
The materials are can easily be retrieved when in need. There will be no congestion in the inventory store and this reduces the time taken looking for the materials. The time used in retrieving the materials is very short as the materials are recorded in such a way that their retrieval time reduces. This will make the management to be in good position of retrieving the materials to be used in production unit. When time spends in retrieving these materials is short the profits generated will also shoot up. This is because the shorter the time taken in retrieving the materials to be used in production the higher the production rate. This means when production is high the company will enjoy the benefits of economies of scale.
The company will experience minimum waste of raw materials. This is due to the company becoming concern about the waste of the raw materials. Well-recorded materials can be easily traced back. It also helps the company in tracing the unused raw materials in each stage of production. As the company also first comes first, serve the raw materials will not perished. This is because some items are highly perishable such they need to be used immediately.
The company will know the reorder time and the reorder quantity that the company needs to order the production to take place smoothly. This means that the company will not run short of the materials used in the production process. Therefore, the company will have the materials all the time at the course of production.