Method Of Costing For Different Types Of Sauces | Sue's Sauce

Types of Sauces Prepared by Sue's Sauce

Discuss about the Analysis of Conducting Interventionist Research.

The memo is prepared for recommending the Sue’s sauces on the method of costing for different types of sauces prepared by the organization. Sue’s sauce prepares four types of pasta sauces such as Bolognese with Red Wine, Bolognese with Bacon, Bolognese with Mushrooms and Roasted Garlic & Onion. In the current scenario, organization is using system of job order costing for costing different types of sauces they are producing. This particular method of costing has helped in getting detailed cost information’s for making decisions about the profitability and pricing of different products that are being produced. The process and basic ingredients used in preparation of sauces are exactly same. However, at the end of process of preparation of sauces, for creating flavouring, different ingredients are added to the sauce (Shields, 2015). Even though the selling prices of sauces are determined without incorporating the information of costs, it is essential to understand the different cost of each batch. The process of job order costing helps Sue in determining which flavour is more costly that should be dropped from the product line (Quattrone, 2016). However, the question of usefulness of job order costing is questioned on the ground of relevance of costing information and consumption of time in such process as much as making the batch itself. This particular method of costing depicts that selling prices are same for all the flavours and led to the production of batch of most popular flavours. It is not clear on part of organization that using such method of costing is providing useful cost information through cost data.

The table below provides description of the types of ingredient used in manufacturing or preparing of all kinds of sauces along with the cost associated with each ingredient. Total cost of ingredient for preparing sauce Bolognese with Bacon is computed at $ 19.446 while that of ingredient cost in preparing Bolognese with Red Wine stood at $ 21.334. Total cost of ingredient for Roasted Garlic & Onion is computed at $ 18.992 and the cost of ingredient for preparing Bolognese with Mushrooms is computed at $ 19.522. Therefore, it can be seen that the total cost of ingredient for preparing Roasted Garlic & Onion sauce is lower followed by Bolognese with Bacon sauce compared to all the other types of sauces prepared by Sue’s sauce. The profitability from selling 1 kilogram of Roasted Garlic & Onion stood at $ 10.10, Bolognese with Mushrooms sauce at $ 10.05 and that of Bolognese with Bacon sauce stood at $ 10.06. Profitability attributable from selling of Bolognese with Red Wine stood at $ 9.87. Therefore, it can be seen that highest profitability is derived from selling of selling of Roasted garlic sauce.

Method of Costing for Different Types of Sauces

The information provided by costing method plays a very crucial role in the decision-making process of organization. Information of costing data helps organization to evaluate the performance by relying on costing techniques consistency. Most importantly, cost information data helps organization in setting the sales price of products. Knowing the cost of products exactly will help in setting competitive prices for the products (Messner, 2016). Despite that other process helps in dictating the sales prices, it is required by managers to make comparison of sales price against the cost of products so that they are aligned with each source of sales revenue. In addition to this, the bottom line figure helps in management in judging the performance of organization in terms of selling price and costing of the products.

Hence, under the method of job costing, it is able to determine the sauce that is capable of generating higher level of profits and incurs lower level of costs. The idea of using process costing is considered reluctant on part of management because of the fear associated with losing of detailed data that is provided compared to method of job costing. Uncertainty also exists in terms of effect of cost due to change in ingredients including change in prices (Hopper & Bui, 2016). Moreover, the cost obtained at the end of accounting period is of little use for the effectiveness of managerial control. It is difficult to compute average costs where more than one type of product is manufactured. Therefore, it is recommended to Sue’s sauce to continue with the job order costing method.

The memo is prepared for making recommendation to Zenn Canada regarding the suppliers from where they should source all headlamps. It can be seen from the analysis of case study that company is facing issue with supplying of headlamps. Supplying of the headlamps has become major issue. Despite having efficient inventory control system, Zenn Australia has been facing difficulty on deciding on number of headlamps that should be supplied. The destruction of manufacturing facility of the company has resulted in stopping of headlamps shipping to Canada. Issues faced with supplying of headlamp are determined by monthly supply of headlamps and reviewing of sales forecast. From the case study, it has been ascertained that there are two suppliers for quoting and supplying the headlamps. The viability of the two suppliers will be determined using both qualitative and quantitative aspects. The quantitative analysis is done by computation of total outflow of cash and total purchase cost for both the suppliers and per unit price of product (Taleb et al., 2015). On other hand, qualitative analysis is done by taking into consideration all the non-financial factors such as warranty of headlights and respective suppliers’ reputation in the market.

Pros and Cons of Job Order Costing and Process Costing

Products of Bakers auto supply are known for quality and providing warranty of one year and the division is operating for more than twenty years. Moreover, the payment system is such that any delay in shipping would make Bakers pay for shipping charge. Products of Bakers will get delivered when it is due on delivery (Shields, 2015). On other hand, Lamp Inc has been into business for two years. It is ensured by the suppliers that the products will get delivered within fifteen days.

Selection of feasibility of these two suppliers are determined on the basis of total number of headlamps required, total purchase and total outflow of cash for purchase (Cooper et al., 2017). The per unit price of product from supplier lamp Inc stood at $ 14.99 unit and that from supplier Bakers Auto supply stood at $ 24.50. Therefore, the per unit pricing of product is lower for lamp Inc compared to Bakers.

It can be seen from the table that total purchase cost of headlamps from supplier baker auto supply is more than purchase cost from lamp Inc. For the same value of forecasted sales, the total purchase cost for each month by baker supply stood at $ 382200, $ 318500, $ 220500, $ 230300, $ 245000, $ 367500 and $ 401800. On other hand, the total purchase cost of supplier for all the months for Lamps Inc stood at $ 233844, $ 194780, $ 134910, $ 140906, $ 149900, $ 224850 and $ 245836 respectively. Therefore, it can be seen that the total purchase cost of headlamp is lower for lamps Inc compared to Baker Auto supply.

The total outflow of cash when sourcing headlamps from lamp Inc stood at $ 233384, $ 113025, $ 208361, $ 165490, $ 138807, $ 152898 and $ 189474 for all the months respectively. Therefore, it can be seen that the total outflow of cash associated with Lamp Inc is lower compared to Baker Auto supply.

Therefore, it can be inferred from both qualitative and quantitative analysis of both the suppliers, that selection of each respective supplier is situational. Bakers Auto supply enjoys more reputable and profitable market for its products because of its high quality products and long-term operations into the market (Bromwich & Scapens, 2016).

Since, the total cash flow for purchase from Bakers Auto supply is more compared to Lamp Inc, it would be recommended to Zenn Canada to opt for Bakers auto supply when they have sufficient cash flow into their business. Moreover, the pricing of per unit product supplied by Baker is higher than Lamp Inc. For capturing the market share, Zenn Canada should opt for suppliers with lower priced per unit for its product. On other hand, if the main focus of Zenn Australia is on the product quality, it would be recommended to company to source their products from Bakers auto supply. Therefore, selection of the suppliers is dependent upon many factors that incorporate both quantitative and qualitative factors.

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