Project Management : Techniques To Analyze Production

Discuss about the Project Management for Techniques to Analyze Production.

 

Introduction

In the modern business environment, every companies operating requires advanced techniques to analyze production cost and cost of sales to undertake pricing decisions for their finished goods. The proper determination of selling price of the products is important for every organization so as to obtain profit for the business for the definite accounting period. Therefore, it is imperative to record the cost of production in detail.

The related case study will find out the cost of manufacture and the cost of sales for the finished product of Carlton Speciality PLC, an organization concerned with the production of custom- based furniture. The accounting data of Carlton Speciality PLC needs to be computed in order to understand the manufacturing cost and the sales cost as most of the records regarding accounts are lost due to a minor fire incident within the company. The other requirements in this study include the analysis of process and job costing.

In the books of Carlton Speciality PLC
Schedule of Cost of Goods Manufactured & Goods Sold
for the month of July'2016
Particulars	Amount	Amount
Direct Material Consumed :
Raw Material Purchase	425000
Add : Opening Balance of Raw Material	3091000
	3516000
Less: Closing Balance of Raw Material	850000	2666000
Direct Labor Costs :		864000
PRIME COST		3530000
Manufacturing Overhead		1350000
FACTORY COST		4880000
Opening Balance of Work-in-Progress	240000
Less: Closing Balance of Work-in-Progress	240000	0
COSTS OF GOODS MANUFACTURED		4880000
Opening Balance of Finished Goods	320000
Less: Closing Balance of Finished Goods	1200000	-880000
COST OF GOODS SOLD		4000000
Add: Profit Margin @50%		2000000
SELLING PRICES		6000000

Workings:

Dr.	Accounts Payable A/c.					Cr.
Date	Particulars	Amount		Date	Particulars	Amount
30-Jun	To, Bank A/c.	430000		1st July	By, Balance B/f	70000
					By, Purchase of Raw Material A/c.	425000
30th June	By, Balance C/f	65000
		495000				495000

 

Dr.	Raw Material A/c.					Cr.
Date	Particulars	Amount		Date	Particulars	Amount
1st July	To, Balance b/f	3091000		30th June	By, Work-in-Progress A/c.	2666000
	To, Accounts Payable A/c.	425000
				30th June	By, Balance c/f	850000
		3516000				3516000

 

Dr.	Finished Goods A/c.					Cr.
Date	Particulars	Amount		Date	Particulars	Amount
1st July	To, Balance B/f	320000			By, Cost of Goods Sold A/c.	1786000
	To, Work-in-Progress A/c.	2666000
				30th June	By, Balance C/f	1200000
		2986000				2986000

 

Dr.	Cost of Goods Sold A/c.					Cr.
Date	Particulars	Amount		Date	Particulars	Amount
30th June	To Finished Goods A/c.	1786000
	To Direct Labor Cost A/c.	864000
	To, Manufacturing Overhead A/c.	1350000		30th June	By, Income Statement	4000000
		4000000				4000000

 

Dr.	Work-in-Progress A/c.					Cr.
Date	Particulars	Amount		Date	Particulars	Amount
1st July	To, Balance B/f	240000			By, Finished Goods A/c.	2666000
	To, Raw Materials A/c.	2666000
				30-Apr	By, Balance C/f	240000
		2906000				2906000

 

Dr.	Manufacturing Overhead A/c.					Cr.
Date	Particulars	Amount		Date	Particulars	Amount
30th June	To Bank A/c.	1350000			By, Cost of Goods Sold A/c.	1350000
		1350000				1350000

2.

In the books of Carlton Speciality PLC
Income Statement
for the month of July'2016
Particulars	Amount	Amount
Sales Revenue		6000000
Cost of Goods Sold		-4000000
Gross Profit		2000000
Selling & Administrative Cost		-400000
Net Income before Interest & Tax		1600000

3.

The difference between Job Costing and Process Costing are as follows:

Job Costing

Job costing refers to the computation of cost of orders and work agreements, which are evaluated according to the customer’s demand. It is a customized way of production business function because this process analyzes every unit of operations individually. The job costing evaluation is done by calculating single job operations individually. The cost center for job costing is concerned with only the job performance and there is no transfer of costs from one individual unit to another. This method is heterogeneous in nature as every work function in this method is non-identical in nature. The essential feature of this technique is that the cost in this method is calculated at the end after the completion of the whole job (DRURY 2013). This method is mostly suitable for the organizations who manufacture goods according to the demands of the customer and the cost reduction from the orders is less in this type of technique.

Process Costing

Process Costing refers to the method in which the costs are incurred on the total number of operations and process undertaken in an enterprise. The manufacturing function in this process takes place in a standardized manner because this function moves according to a stipulated guideline for operations. Process costing determines all the costs together in the beginning of the process and then allocates to the various division of the manufacturing units. The cost center in this method involves a process or mechanism. The cost associated with any work also gets migrated with the work when the commodity moves from one processing unit to the other.  This technique is an ongoing process function and so the commodities manufactured are similar in nature having identical characteristics and thus losing their individuality. In process costing, the total cost of production is computed at the end of the manufacturing period. The process is ideal for firms who are mass producers of any product as this method is a continuous one without any interruptions and the level of cost reduction is higher in this technique thus giving a competitive edge to the organizations (DRURY 2013).

4. According to the given question, monthly production report is an example of Periodic inventory system. This is because monthly production report refers to systematic and periodic up gradation of inventory system after every month. It is known that periodic inventory system is the process of updating records of the inventory after any specific time-period example after a quarter, month or year (Chołodowicz and Orłowski 2015). Thus it is for certain that monthly production report is an example of periodic inventory system.

Conclusion

The above questions gives out the schedule for cost of goods produced and cost of goods sold of the firm Carlton Speciality PLC to determine the missing information of accounts due to loss in fire. It also finds out the difference between process and job costing and finds out that monthly production report is an example of Periodic inventory system.

Reference List

ChoÅ‚odowicz, E. and OrÅ‚owski, P., 2015. A periodic inventory control system with adaptive reference stock level for long supply delay. Measurement Automation Monitoring, 61.

DRURY, C.M., 2013. Management and cost accounting. Springer.