A company is an organization duly registered under the requirements of the law. The business has both internal and external constitution that govern its operations within and outside environment (Hopper, & Armstrong, 1991).
High-speed manufacturer is a company I would like to start with an initial authorized capital of ten million divided into one million shares of ten shillings each. The company will deal with the production of telecommunication gadgets such as phones and tablets. In other words, the company will deal with high-end products due to the nature of their production. The produce is mainly for sale to the general public and individuals who require customized items.
The product will require an input of expensive materials that make it a high-end product. The inputs include materials such as gold, lithium, silicon and glass. In addition to materials, skilled labour forms the basis of all expensive products. Skilled labour is updated with the relevant technology that helps to develop important prototypes. Accompanying the major costs are expenses and other overheads which form part of the costs initiated in the production process.
The table included shows the combined costs of both direct and indirect requirements for the finished product.
|Material cost; it will involve all the materials incorporated in the manufacture of the products. The materials include; gold product, glass, lithium and silicon||The estimated cost of the materials is about five hundred thousand US dollars.|
|Labour. The company will require highly skilled persons to help in the provision of labour. They must be conversant with the technology and incorporate it in the process of manufacturing.||The cost will vary from the level of experience and the functions an individual performs. In total labour cost is expected to be at eighty thousand US dollars.|
|Expenses and other relevant costs such as the cost of launching the product including selling and distribution.||The costs are estimated at about thirty thousand US dollars.|
Due to the nature of the products and the target population the product selling price is marked at the rate of twenty five percent for the start and breakthrough of the market.
The cost statement will be as follows;
Cost of materials 500, 000
Cost of labour 80,000
Overheads and expenses 30,000
The total cost of sales 610,000
The expected output from the capital invested is 1000 units for the start. Therefore, the cost of one unit is 610,000/1000 =$610
To obtain the selling price we need to mark it up with the mark up of 25%.
The selling price will be 125% of $610
=$762.5 per unit.
The selling price incorporates a profit of $762.5-610 = $152.5per unit. Therefore, for every batch of 1000 units produced, the profit will be $152.5*1000 = $15250. The selling price is absolutely favorable and will have a return impact to the investor who wishes to invest in High-Speed Company.
Process costing is important in my company since the production of the items will be in stages an all the stages will require inputs (Drury, 2013). Basically, for a complete item of a phone will require undergoing three stages or process. Therefore, in the beginning, all inputs will be introduced to the system for the first time. After that, the output of one process will be the input of the next process till the finished good is attained.
Activity-based costing, variable costing and throughput costing are not suitable methods to use in the company. Firstly, the company involves various processes which the methods here cannot assist in ascertaining the relevant cost of each process. Activity-based costing requires the assignment of activity costs to the relevant resources and services as opposed to process costing. The procedure is involved in assigning more indirect costs than the direct costs which are not the case when production takes place.
Variable costing also is known as absorption costing separately identifies the variable costs involved in the production and treats them differently from the fixed costs. The approach is not comprehensive as compared to process costing which does not classify the costs into separate subheadings.
Throughput method separates direct materials from other costs. The approach considers direct materials as inventory costs. All other costs related to manufacturing are treated as period costs. They are assumed not to occur more often and thus only incurred during manufacturing process only (Hansen, Mowen, & Guan, 2007).
Ethics is one of the most vulnerable areas of cost accounting. The accounting standards help to uphold the ethical standards in the field of accounting, auditing and reporting (Horngren, Bhimani, Datar, Foster, & Horngren, 2002). Ethical considerations play a major role in the costs related to identifiable cost centres are recorded as they occur. The standards help in the provision of information that reflects facts and the true nature of the company’s information to the users (Cooper, & Kaplan, 1988). In addition, to determine the prices of products it requires discipline hence gives important information that helps in pricing.
In conclusion, the manufacturing of high-end products involves complex stages that require technical skills to handle. The raw materials undergo various processes and in each, a finer product is obtained before capturing the finished good. The company must ensure installation of a system that helps reduce cut costs.
Cooper, R. & Kaplan, R. S. (1988). Measure costs right: make the right decisions. Harvard business review, 66(5), 96-103.
DRURY, C. M. (2013). Management and cost accounting. Springer.
Hansen, D., Mowen, M., & Guan, L. (2007). Cost management: accounting and control. Cengage Learning.
Hopper, T., & Armstrong, P. (1991). Cost accounting, controlling labour and the rise of conglomerates. Accounting, organizations and society, 16(5-6), 405-438.
Horngren, C. T., Bhimani, A., Datar, S. M., Foster, G., & Horngren, C. T. (2002). Management and cost accounting. Harlow: Financial Times/Prentice Hall.