Ralph Kern, controller of Bennett Body Company
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1. As a response to the email of Paul Bennett:
In accumulating the cost of production, Job order costing is being used by our company, Bennett Body Company, whereas, Conely Corporation uses process costing. Bennett system incurs a higher cost of paperwork because of costing products on a per job order basis. Their products are based on customers specification, thus, products are unique from each other. In Conely’s, system costs of production is on a per department basis because of its standard design. In our present set-up, process costing seems to be inapplicable.
There are cost differences that can be noted between actual and standard costs of Conely system, as follows:
Materials Price and Usage Differences;
Labor Rate Differences;
Labor Efficiency Difference;
Production Volume Difference
Standard costs are developed from former year's experiences and accomplishments and some adjustments from each department's managers.
If our product's sales volume is seasonal in nature, it would be better to have our overhead allocation rate change to monthly from annually. If not, we could stick to annual overhead rate for simplicity of computation.
Bennett should maintain its job order costing since it concentrates on
manufacturing customized trucks. Each model that they produce may not be
applicable for future demands and they occasionally receive orders that
require changes on previous models.
2. In order for Bennett to improve its costing system, they may incorporate
standard job costing in order for them to reduce the cost of paper works and
recordkeeping. This will also enable the management to assess the
performance of the company since they can have a comparison of the actual
cost of production against the standard cost that has been established.
Standard job costing allows the...