Question No. 1 Response to email of Paul Bennett Our company (Benneth System) has a higher cost of paperwork because we are using Job Order Costing than Conly System’s process costing . Conly Corporation uses Process costing in accumulating cost of production. We are costing products based on per job order bases. Conly is costing their production on a per department basis because it has standard model design. Our products are based on costumer’s specification, and therefore each product is unique. Process costing can not be used under our present set-up.
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Possible reasons for cost differences between actual and standard costs under Conley’s system: a. Materials Price and Usage Differences b. Labor Rate Differences c. Labor Efficiency Difference d. Production Volume Difference Standard Cost are usually develop from previous year’s experiences 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. Under our present production, it is preferable to stick with Job Order costing.
Unless we change our products to a more standard design (no customer specifications), Process costing will not work under our system. Question No. 2 We can modify our present system so that variance report can be accumulated at the end of each month or period. The following variances can be set-up in our accounting system for better management decisions: a. Material Price Variance b. Material Volume Variance Labor Rate Variance d. Labor Efficiency Variance e. Variable Manufacturing Overhead Variance f. Fixed Overhead Variance- f. 1 Budget Variance f. 2 Volume Variance