Assume you are running a business and must manufacture a product to sell. For th

Question

Assume you are running a business and must manufacture a product to sell. For this assignment, you will need to create a product and document the relevant costs. That means you will need to gather raw materials, supply the labor and overhead, and create the product. For instance, you can bake a cake, create a floral arrangement, build a birdhouse, make a doorstopper, make jewelry, etc.

Prepare a plan of what is done during each step in the manufacturing process, and most importantly, an accounting for the cost of the materials, labor, and overhead that goes into the finished product.

Write a three to five page analysis, detailing how the product’s cost was determined. You will need to explain how the direct and indirect costs were calculated and what assumptions were used. A job cost sheet and a breakdown of costs are required. Include the total product cost and selling price of the product. Remember to be creative and innovative!

Address the following questions:

•What is the relationship of product cost to the financial statements?
•What is the purpose of creating a schedule of cost of goods manufactured? How does this schedule relate to the income statement?
•Are there ways to reduce certain costs in your product’s manufacturing process? For instance, could you outsource certain areas of production? If so, would be cost effective to do so?
•What alternative ways exist for allocating overhead to your product?
•What kind of costing system would work best for your product – job order costing, process costing, standard costing, etc.?
•What qualitative factors might impact your overall product cost – time, quality, etc.?
•What type of markup did you use to price your product?
•What is the value of proper cost allocation practices and their impact on various business entities? Give a specific example.

Explanation / Answer

•What is the relationship of product cost to the financial statements? - The product costs helps in determining the selling price of the product which id ultimately posted to the financial statements •What is the purpose of creating a schedule of cost of goods manufactured? How does this schedule relate to the income statement? - Cost of good manufactured schedule helps you determine the amount of work that has been done in a particular period •Are there ways to reduce certain costs in your product’s manufacturing process? For instance, could you outsource certain areas of production? If so, would be cost effective to do so? - Yes there are many ways to reduce costs - such as using a cheaper substitute of raw material, using other suppliers etc •What alternative ways exist for allocating overhead to your product? - Activity Based costing •What kind of costing system would work best for your product – job order costing, process costing, standard costing, etc.? - Job order costing •What qualitative factors might impact your overall product cost – time, quality, etc.? •What type of markup did you use to price your product? Cost plus mark up •What is the value of proper cost allocation practices and their impact on various business entities? Give a specific example. - Proper cost allocation can be done only through activity based costing happy to help

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