4.1 Customer And Product Line Decisions Based On Differential Analysis

Differential analysis or incremental analysis is one of management accounting techniques by only examining the differences in profits, costs, and revenues resulting from decision of business rather than reporting the full statements of income for every alternative (Jan, 2019). This means in general, the types of financial data that might be excluded are the cash flow statements and balanced sheet’s Krakatau Steel Inc, since it is mentioned in the above definitions that the creation of income statements can be simplified by the above three terms for our differential analysis.     

To use differential analysis for decisional evaluation whether we need keeping or dropping customers based on the profits, specific costs and revenues need to be considered. For the purpose of our study, the specific costs which can be variable costs, direct fixed cost, and allocated fixed costs (Management, 2017) in relation to tracking information by real potential customers of Krakatau Steel’s Inc with unreal financial data can be presented by the analysis of the following table (Saylor, n.d.),

The above results mentioned that dropping the energy company's account as the customer of Krakatau steel is not recommended due to the final loss of profit. In fact, even though the energy company’s contribution to the Krakatau steel is giving the lost of -15000 usd, if we keep it becoming the valuable customer, aggregated profits  with all customers are better than those if the energy company is dropped.

The same way can be used to decide whether to keep or drop the product lines of Krakatau steel due to the existing competitors which result in profit or loss of the financial information (Dotorg, n.d.). This way we can just put the existing product lines based on the company profile of Krakatau steel Inc including Hot Rolled Coil (HRC), Cold Rolled Coil (CRC), and Wired Rod (WR) in place of the above three customer names with the same names of specific cost and revenues (Management, 2017)   

In addition, other important cost definitions in the discussions of differential analysis of every company are the sunk and opportunity costs. Sunk cost of Krakatau Steel Inc can be defined as the unrecovered cost that has already been spent by the company such as the heavy machineries and equipment which is hugely expensive. The sunk cost will remain constant regardless of the impact of the final decision. This is why the so called sunk cost is not considered in differential analysis (Tuovila, 2021). Another one is the opportunity cost which can be defined as the cost we need to pay or lost benefit (Anonimous, n.d.) as a result of choosing an alternative and neglecting the others. The examples of the cost were previously explained in choosing alternatives of decisions to keep or drop product lines and customer. As a matter of fact, this opportunity cost will be different in relation to different choices of available alternatives. This is the reason why opportunity cost is fully considered for differential analysis.   

 

References

Jan, O. (2019, March 31). Differential analysis. Differential (Incremental) Analysis in Accounting | Example. Retrieved September 27, 2021, from https://xplaind.com/478812/differential-analysis.

Management, K. R. A. S. (2017). Krakatau Steel's Company Profile. Cilegon; PT. Krakatau Steel.

Saylor. (n.d.). Customer Decisions. Customer decisions. Retrieved September 28, 2021, from https://saylordotorg.github.io/text_managerial-accounting/s11-04-customer-decisions.html.

Dotorg, S. (n.d.). Product line decisions. Retrieved September 28, 2021, from https://saylordotorg.github.io/text_managerial-accounting/s11-03-product-line-decisions.html#heisinger_1.0-ch07_s03_s02_f01.

Tuovila, A. (2021, September 19). Sunk cost. Investopedia. Retrieved September 28, 2021, from https://www.investopedia.com/terms/s/sunkcost.asp.

Anonimous. (n.d.). Opportunity Cost. Review of cost terms used in differential analysis. Retrieved September 28, 2021, from https://saylordotorg.github.io/text_managerial-accounting/s11-05-review-of-cost-terms-used-in-d.html.

 

3.3 CVP Analysis, Break-Even Point And Their Impacts To The Financial Statements

 

Cost – Volume – Profit (CVP) analysis is a technique used to evaluate the viability and ability to scale or grow a business. It is also used to understand the relation between costs, volume and profits.  The focus of the analysis is based on the interaction of product mix, fixed & variable costs, volume and pricing. The CVP analysis will direct decisions on the kinds of offered products, how the products are priced, and how to control or manage the cost structure of an organization. Considering the contribution margin as a starting point, CVP analysis is a vital technique in the calculation of levels of volume required to realize the levels of targeted income, and other similar calculations including the break-even point (BEP) (Walter & Skousen, 2009).

As we previously discussed, BEP in units is division of fixed cost with contribution margin, and BEP in sales is the same way but we use the contribution margin ratio. Further supporting calculation used the fact that Contribution margin is subtraction of sales revenue with variable cost and the ratio is division of the contribution margin with the sales revenue (Walter & Skousen, 2009). Based on that formula, we can recognize the terms involved in detail of financial statement’s specific lines in general are everything in the category of fixed costs, variable costs, and sales revenues. Another name of the addition between fixed and variable cost is the so called cost structure (anonymous, 2020). That’s why the previous discussion forum use this cost structure term to compare only two terms between sale revenues or net revenues which are the total sale revenues of a company in a financial period after subtraction with certain items (Rivers, 2021). All of the terms impact the financial statement (income statement, statement of cash flows and balanced sheets) reports.         

The impact of getting or not getting the required BEP of a company based on the CVP analysis can be seen in the company’s financial statements especially the income statement. Further look at to the detail of an example of how this impacted financial report happens can be seen in specific lines of Krakatau Steel’s income statements ((Karim & Tardi, 2021)) mentioning the information that not only does the Krakatau Steel meet the required BEP but it also has good profit of the period because of the cost structure (Fixed and variable costs) is less than the net sales and other sale revenues based on the following report,

Krakatau Steel’s income statement (Karim & Tardi, 2021)

The above results also mean that after the fixed costs are covered, the remaining revenues are the ones generating the profit. (Team, 2021). In detail, based on the above statement, the profit which can be analyzed in the impacted specific lines is the fact that net revenues and other sale revenues such as sales of waste product are greater than Variable costs such as SG&A (Selling, General and Administrative) expenses (Garcia, 2019), and fixed costs such as final tax.

 The impacted specific lines of the statement of cash flow can be analyzed based on the fact that SG&A which has the same name as operating expenses is one of the input data of the previous cash flow file exercises besides two other data which are the investing and financing activities. The ending of this cash flow calculation is the cash balance at the end of the year.

Finally, the ending cash balance at the end of the period of the cash flow statement as one of the company’s asset in addition to the retained earnings at the end of the period as one of the stockholder’s equity becomes the inputs of the balanced sheet calculations.  By this analysis, it is true that the effect of BEP achievement based on CVP analysis affected all financial statements.

 

References

Walter, L. M., & Skousen, C. J. (2009). Managerial and Cost Accounting (Ser. 978-87-7681-491-5). bookboon.com.

Anonimous. (2020, March 23). Cost structure. Corporate Finance Institute. Retrieved September 22, 2021, from https://corporatefinanceinstitute.com/resources/knowledge/finance/cost-structure/.

Rivers, J. (2021). Net sales DEFINED: Net sales vs. gross sales . The Strategic CFO iCal. Retrieved September 24, 2021, from https://strategiccfo.com/net-sales/.  

Karim, S., & Tardi. (2021). Financial Reports / Statements of PT. Krakatau Steel. www.krakatausteel.com. Retrieved September 16, 2021, from https://www.krakatausteel.com/public/pdf/Financial%20Report%20KRAS%20June%202021.pdf.

Team, T. I. (2021, September 13). Understanding contribution margins. Investopedia. Retrieved September 21, 2021, from https://www.investopedia.com/terms/c/contributionmargin.asp.

Garcia, M. (2019, August 27). How to determine variable costs from financial statements. Bizfluent. Retrieved September 21, 2021, from https://bizfluent.com/how-12009134-determine-variable-costs-financial-statements.html.

 

3.2 Break-Even Point (BEP) Analysis of a Parasailing Company

 

A developing parasailing company has operational calculations mainly based on the number of flight basis.  The number of flights is really needed to be considered as a very important aspect of the break-even point calculation.

The calculation of break-even point of every company in general can be defined by the following formula (Walter and Shousen, 2009): 

Break-even point in units = total fixed cost / contribution margin per unit = fixed cost / (sales per unit – variable cost per unit) ………… (1)

Break-even point in sales = total fixed costs / contribution margin ratio ………… (2)

And the so called contribution margin can be defined as,

Contribution Margin (CM) per unit = Sales Revenue per unit – Variable Costs per unit ………………………….. (3)

CM ratio per unit = (Sales Revenue - Variable Costs) per unit/ Sales Revenue per unit………………………….. (4)

To proceed with the break-even calculation based on the above formulas, the required inputs are variable and fixed costs. Therefore, other than The Sales revenue per flight consisting of

1.     Sales price with the amount of $175 / flight , and

2.     Total sales revenue per flight  : $ 175 / flight,  

We also need to classify available data of our parasailing company to be between variable or fixed ones.

Variable costs (any expenses that we can control or anything that can be bought in a store ((Posner, n.d.))):

-        Fuel costs per flight (Battles, 2003) : $100 / flight

-    The boat crew with the amount of $30  / flight,

-    Total Variable Cost : $130 /flight

Fixed costs (any expense that does not change from period to period (Posner, n.d.)):

1.     Loan payments per month (Posner, n.d.) : $350

2.     Full time scheduler salary per month (Team, 2021) : $2,500

3. Dock fee and use of a small office on a pier Per month (Posner, n.d.) : $500
4. Total fixed costs : $350 + $2,500 + $500 = $ 3350 / month

Based on the available input, the calculation of break-even point (BEP) of the year 1 assuming the company has well – reputed name without the need of referrals fee can be done  by referring to equation …(1) and …(2) using the following ways,

Break-even point in units of flight = Total fixed cost / contribution margin per unit

= Total fixed cost /[sales revenue/unit – variable cost/unit] ………… (1)

                   = [$ 3350 / month] / [($ 175 / flight)-($130 / flight)]

= 3350 /45 flight/month

= 74.44 flight /month

≈ 74 flight / month in year 1

Break-even point in sales = Total fixed costs / contribution margin ratio ………… (2)

     = [$ 3350 / month] / [{($ 175 / flight)-($130 / flight)}/{($ 175 /    flight)}]

     = $ 13027.78 per month in year 1 

In the calculation of the break-even point of year 2 assuming the market becomes fluctuated and needs the assistance of reference or marketing agent causing the referral or marketing fees, we need to little bit change the conventional one to be the contribution margin after marketing (CMAM) by using the following formula (CFI, 2020),

CMAM = sales revenue – variable costs – marketing expense …………………………….. (5)

CMAM ratio = (sales revenue – variable costs – marketing expense)/sales revenue ………. (6)

 

Therefore, the BEP of year 2 becomes,

BEP in units of flights = Fixed cost / CMAM

= [$ 3350 / month] / [($ 175 / flight)-($130 / flight) – 2% * ($ 175 / flight)]

= 80.72 flight / month in year 2 ≈ 81 flight / month in year 2 (which is (80.72-74.44) = 6.28 ≈ 6. 3 greater in difference from the year 1).

BEP in sales = fixed cost / CMAM ratio

= [$ 3350 / month] / [{($ 175 / flight)-($130 / flight) – 2% * ($ 175 / flight)}/{($ 175 / flight)}]

= $ 14126.51 per month in year 2 which is $(14126.51-13027.78) = $1098.73 greater in difference from the year 1.

            In the year 3, assuming we still need to pay for the referral / marketing fee and requiring the profits of $10,000, the targeted units of flight and sales can be determined by adding target income with fixed costs and dividing both of them with the CMAM 

BEP in units of flights = (Fixed cost + target income) / CMAM

= [{$ 3350 / month] + $ (10,000/12)/month} / [($ 175 / flight)-($130 / flight) – 2% * ($ 175 / flight)]

=100.8 flight/month ≈ 101 flight/month in year 3 (which is (100.8-80.72) = 20.08 ≈ 20 greater in difference from the year 2)

BEP in sales = (Fixed cost + target income) / CMAM ratio

= [$ 3350 / month + $ (10,000/12)/month] / [{($ 175 / flight)-($130 / flight) – 2% * ($ 175 / flight)}/{($ 175 / flight)}]

= $17640.56 per month in year 3 which is $(17640.56-14126.51) = $3514.05 greater in difference from the year 2.

The above results may be limited due to the limited variable cost data which only include fuel cost/flight, and the cost of both crew service. Other kinds of variable cost which may be missing can be the selling, general and administrative expenses (SG&A) (Garcia, 2019) such as that of the ticket production cost, overtime bonus for the employees, accounting costs, legal costs, etc (Beaver, n.d.).

As a matter of fact, the above results of year 1 to 3 tell us that if the company keeps going in a good progress of maintaining the good sale revenues then the parasailing company will be able to exactly or even more than overcome all costs including the non-interest bank loan payments as one of the company’s fixed costs meaning that the bank should invest in the parasailing company rather than giving the loan. That way means If the company gets profit, then the bank will get profit, and if the company gets loss, the invested money from the bank has to be lost. All of them should be calculated in such a good manners and proportional way that all parties can be well satisfied, no forbidden religious rules are neglected and no usury is involved.          

 

Reference

Walter, L. M., & Skousen, C. J. (2009). Managerial and Cost Accounting (Ser. 978-87-7681-491-5). bookboon.com.

Posner, C. (n.d.). What are fixed, savings and variable costs and expenses, and how will they help me learn how to budget my money properly? My Money Coach. Retrieved September 22, 2021, from https://www.mymoneycoach.ca/blog/what-are-fixed-savings-variable-costs-expenses-and-learn-to-budget-money.html.

Battles, B. (2003, February 1). Costs come in many flavors: Variable vs. fixed. StackPath. Retrieved September 22, 2021, from https://www.aviationpros.com/home/article/10387227/costs-come-in-many-flavors-variable-vs-fixed.

Team, T. I. (2021, September 13). Do minimum wage laws make labor a fixed or variable cost? Investopedia. Retrieved September 22, 2021, from https://www.investopedia.com/ask/answers/012915/do-minimum-wage-laws-make-labor-fixed-or-variable-cost.asp.

CFI. (2020, December 7). Contribution margin after marketing (CMAM). Corporate Finance Institute. Retrieved September 22, 2021, from https://corporatefinanceinstitute.com/resources/knowledge/accounting/contribution-margin-after-marketing-cmam/.

Garcia, M. (2019, August 27). How to determine variable costs from financial statements. Bizfluent. Retrieved September 21, 2021, from https://bizfluent.com/how-12009134-determine-variable-costs-financial-statements.html.

Beaver, S. (n.d.). The costs behind selling, General & Administrative expenses. Oracle NetSuite. Retrieved September 22, 2021, from https://www.netsuite.com/portal/resource/articles/accounting/selling-general-administrative-sga.shtml.

3.1 Krakatau Steel’s Contribution Margin, Cost Structure and Sales

 

Contribution margin is a representation of generated incremental resources or money for each sold product/unit after deduction of variable costs of the company which is the Krakatau Steel Inc in this case. Computation of contribution margin can be done by subtraction of the selling price per unit with the variable cost per unit. This measure is also known as dollar contribution per unit. The measure is an indication of how the overall profit is contributed by a particular product. It also exhibits sales portion helping Krakatau steel to cover the fixed costs and potential of profit offered by steel products of the company. After the fixed costs are covered, the remaining revenues will generate the profit. (Team, 2021). By definition, the way to calculate the contribution margin is by using the following formula,

Contribution Margin (CM) = Sales Revenue – Variable Costs ………………………….. (1)

And in percentage terms, the CM ration can be defined as,

CM ratio = (Sales revenue - Variable Costs)/ Sales Revenue………………………….. (2)

Based on the above two formulas, in the calculation of contribution margin of Krakatau Steel Inc, the specific variables sales revenue and variable costs. The sales revenue is simply determined by multiplication of the total units of sales with the average price per unit (Campbell, 2021) of steel product in the case of Krakatau Steel Inc.      

Variable costs decrease and increase based on the levels of production and sales. On a variable costing of income statement, the template of this costs are labeled explicitly on the income statement. In usual, variable costs of any company in general income statement template can be determined by two general terms under sales revenue – cost of goods sold and variable SG&A (Selling, General and Administrative) expenses (Garcia, 2019). Based on financial information data of Krakatau Steel Inc available at (Karim & Tardi, 2021), the variable costs of Krakatau steel in June 2021 consisted of costs of revenues of 926.303 thousand USD, selling expenses of 20.369 thousand USD, general and administrative expenses of 45.185 thousand USD.   If we simplify the calculation to make it hypothetically simple. The net revenue becomes the sales revenue which has the value of 1055.277 thousand USD and other incomes from other sales are approximately neglected. Then the Krakatau steel’s Contribution margin and it’s percentage can be determined by the following calculation:  

CM      = sales revenue – variable costs

= 1055.277 – (926.303 + 20.369+45.185) = 63.42 thousand USD = n [(price/unit) –variable cost/unit] 

CM Ratio = n units x 100% x (sales revenue/unit – variable costs/unit)/(sales revenue/unit) = 6.00 %

Since it’s difficult to fine the total units of sold steel, if we let n be the the total sold units of steel, then the Contribution margin and it’s percentage of a unit of steel is CM / 1 unit = 63.42 / n thousand USD and it’s percentage is 6/n % .

Krakatau Steel’s income statement (Karim & Tardi, 2021)

The discussion ends up with the relationships between the Krakatau steel’s costs structures and sales. Cost structures can be defined as the sum of the variable and fixed costs (anonymous, 2020 ). Therefore, based on the above results, we can conclude that the n units of sold steel product is much greater than the previous years making the sales of Krakatau steel is greater than the cost structure making it able to generate a good profit for the period.

 

References

Team, T. I. (2021, September 13). Understanding contribution margins. Investopedia. Retrieved September 21, 2021, from https://www.investopedia.com/terms/c/contributionmargin.asp.

Garcia, M. (2019, August 27). How to determine variable costs from financial statements. Bizfluent. Retrieved September 21, 2021, from https://bizfluent.com/how-12009134-determine-variable-costs-financial-statements.html.

Campbell, P. (2021). Sales revenue formula: Calculate & Grow total revenue. Sales Revenue Formula: Calculate & Grow Total Revenue. Retrieved September 21, 2021, from https://www.priceintelligently.com/blog/revenue-formula.

Karim, S., & Tardi. (2021). Financial Reports / Statements of PT. Krakatau Steel. www.krakatausteel.com. Retrieved September 16, 2021, from https://www.krakatausteel.com/public/pdf/Financial%20Report%20KRAS%20June%202021.pdf.

Anonimous. (2020, March 23). Cost structure. Corporate Finance Institute. Retrieved September 22, 2021, from https://corporatefinanceinstitute.com/resources/knowledge/finance/cost-structure/.

 

2.3 Selling, General And Administrative (SG&A) Expenses of PT. Krakatau Steel

In companies as general, selling, general and administrative – operating costs are the expenses for managing and operating a business including costs of rent and utility, expenditures for advertising and marketing, distribution costs (Beaver, 2021), a set of personal computer or laptop, and benefits for all employees. In nature, the expenses are considered fixed or semi variable because they are not fluctuating with the volumes of purchases and manufactures. The operating costs are also considered as indirect expenses on the income statement of a company because of indirect contribution to the service delivery or product manufacturing (BDC, n.d).

The following table mentioned operating expenses of PT. Krakatau Steel in the end of 2020 and June 30, 2021. Based on the table, in June 2021, Karim & Tardi  reported the specific types of SG&A costs or expenses that PT. Krakatau Steel incur including selling (expense of delivery, employee benefits, wages and salaries, expense of office, the claims from costumers, communication and transportation, amortization and depreciation and others), General and Administrative (benefits for employees, salaries and wages, amortization and depreciation, expense of office, maintenance and repairs, rental and insurance, fees of professional, provision for impairment receivables and others ). In comparison, the points of all selling expenses increase in some amount except for the customer complain expense which decrease from 634 to 259 thousand USD. This means the company well-pay for the customer’s satisfaction reducing the claims of customer, operational needs in office and employee’s wealth. In the general and administrative expenses, considerable increasing ones are for employee’s wealth, rental and insurance, relatively huge increasing one is the provision for impairment receivable, and the company decreases the expenses of depreciation and amortization, office expense, maintenance and repairs, professional fees and others.

Operating expenses of PT. Krakatau Steel (Karim & Tardi, 2021)

            Considering the product costing which is the steel (Hot rolled coil cold rolled coil wire rod) as the main product of the company, in the period of the expense occurrence, SG&A will be reported on the statement of income of every companies in this case PT. Krakatau Steel. Therefore, as opposed to becoming part of the cost of the steel product, the expenses of SG&A are considered to be periodic expenses. The expenses are not assigned to the sold steels or the ones archived in the Krakatau steel’s inventory (Averkamp, 2021). The expense In more detail, the Krakatau steel incorporated company periodically reported annual financial statements and in the above report, the data was given in the month of June 2021 compared to the previously periodic year of June 2020. The report mentioned the total selling expenses of the company at the concerned period increases by 32.2 % from 15.405 thousand USD to 20.369 thousand USD, and the total general and administrative expenses of the company at that time period also increases by 11.28 % from 58.909 thousand USD to 65.554 thousand USD. In conclusion, Krakatau steel Inc’s total operating   expenses or SG&A increase in one periodic years from June 2020 to June 2021. 

References

BDC. (n.d.). What are operating (SG&A) expenses? – definition. BDC.ca. Retrieved September 16, 2021, from https://www.bdc.ca/en/articles-tools/entrepreneur-toolkit/templates-business-guides/glossary/operating-sg-and-a-expenses.

Beaver, S. (2021). The costs behind selling, General & Administrative expenses. Oracle NetSuite. Retrieved September 16, 2021, from https://www.netsuite.com/portal/resource/articles/accounting/selling-general-administrative-sga.shtml.

Karim, S., & Tardi. (2021). Financial Reports / Statements of PT. Krakatau Steel. www.krakatausteel.com. Retrieved September 16, 2021, from https://www.krakatausteel.com/public/pdf/Financial%20Report%20KRAS%20June%202021.pdf.

Averkamp, H. (2021). What is SG&A?: Accountingcoach. AccountingCoach.com. Retrieved September 16, 2021, from https://www.accountingcoach.com/blog/what-is-sga.

 

2.2 The three costing methods

• Definition the three costing methods.

In a managerial accounting. There exist three kinds of costing methods – job order costing, process costing and activity-based costing. Job order costing is a costing method by cost determination of manufacturing each product (Kesavan, 2020). The process costing is a method of costing by costing the process unlike the job costing which costs each job separately. The process /input costing can also be defined as,

Cost per unit = cost of inputs / expected output in units = total process cost /                                            production unit

 

(A.  C. C. A, n.d.)

The third method is activity based costing. It is a method of costing which assigns indirect and operational costs to the related services and product. This method acknowledges the existence of relation between manufactured products, operational activities and costs, assigning indirect cost to product less based on random choice than conventional/traditional costing method. However, some non-direct cost such as the salaries of the office staff and management are not easy to assign to a product (Kenton, 2021).  

• Explanation when each is most appropriately used.

The adoption of job order method happens once the manufacturers produce different one by one products and they need to do the calculation of the cost of independent job performance. Moreover, it is also used to determine if a job is really profitable or not (Kesavan, 2020). In contrast, process costing happens when a manufacturing company is established with massive production of almost identical products having the same individual output unit costs. This assume that the cost of every produced product is the same as that of every other product (Bragg, 2021). The third one is appropriately used when we fix a service or product price, identify activities, products, process, all departments which are not able to efficiently operate, achieve the control of cost at departmental or product level, identify unneeded cost which could be completely removed, identify profitable departments, products or activities having greater needs of allocated resources  (Benaroya, 2019).             

• Comparing and contrasting the methods, considering both advantages and disadvantages.

In comparison, the advantage of the job costing method is that it can allow a company to be able to reliably estimate the spent labor, materials and operating costs throughout a job performance, while it’s disadvantages are more paper works needed, difficulties of measurement, more internal conflicts, operational costs which are based on estimation, and uncontrolled operational costs (Anonimous, 2021). Talking about the process cost, it can be periodically determined in a short time interval, less expensive and simple, getting evaluational performance of every process, getting more accurate costs with easy allocation of the expanses to the process, and easiness to quote the price with standardized process, while the disadvantages of the process costs are at the final accounting period the obtained costs are only historical and can’t be used for effective control, progressing work must be ascertained to calculate the continuous process cost with the fact that the continuous work done by approximation introducing total cost inaccuracy, not reliable due to approximation, having errors of average cost calculation, and more difficult average cost calculation in cases if the companies manufactured more than one type of products  and it’s necessary to divide the cost elements (Ojha, 2019). In summary, the advantages of activity based costing are more accurate service or product costing, which leads to more accurate decision in price (CGMA, 2013), and the disadvantages are  time consuming in data collection and preparation, more costs given in accumulating and analyzing information, normal reports of accounting are not always ready to be data source, etc (Woodruff,2019)     

• The proposal for the cost method Wet Suit World should use.

The wet suit word company mentioned the same materials of all suits but can vary in the thickness. Moreover the quality inspection and production processes are the same. Based on the available information of the above three costing methods. The process costing is relatively more suitable for calculating the cost of the fabrication and manufacturing of the suit since it confirms the suitability of the process costing that is well used for massive production of almost identical wet suit having the same individual output unit costs with the assumption that the cost of every produced wet suit is the same as that of every other wet suit (Bragg, 2021) with different measures of thickness. Or the company can just variance the price using process costing but the price can be higher for higher thickness of the suit product.

 

References

Kesavan, S. (2020, June 5). What is job order costing? - zoho inventory. Essential Business Guides. Retrieved September 15, 2021, from https://www.zoho.com/inventory/guides/what-is-job-order-costing.html.

Anonimous. (2021). MSG management study guide. Advantages of Job order Costing. Retrieved September 15, 2021, from https://www.managementstudyguide.com/advantages-of-job-order-costing.htm.

A. C. C. A. (n.d.). Process costing. ACCA. Retrieved September 15, 2021, from https://www.accaglobal.com/vn/en/student/exam-support-resources/fundamentals-exams-study-resources/f2/technical-articles/process-costing.html.

Bragg, S. (2021, August 10). Process costing: Process cost accounting. AccountingTools. Retrieved September 15, 2021, from https://www.accountingtools.com/articles/2017/5/14/process-costing-process-cost-accounting.

Ojha, C. A. D. (2019). Advantages & Disadvantages of Process Costing. Civil Service Gurukul One Stop Solution For UPSC Preparation. Retrieved 2020, from https://www.civilservicegurukul.com/advantages-disadvantages-of-process-costing/.

Kenton, W. (2021, July 28). Activity-Based costing (ABC). Investopedia. Retrieved September 15, 2021, from https://www.investopedia.com/terms/a/abc.asp.

Benaroya, R. (2019, July 18). When is Activity-Based Costing needed? Stride Services. Retrieved September 15, 2021, from https://stride.services/blog/when-is-activity-based-costing-needed/.

CGMA. (2013, June 11). Activity-based costing (abc). CGMA. Retrieved September 16, 2021, from https://www.cgma.org/resources/tools/essential-tools/activity-based-costing.html.

Woodruff, J. (2019, January 25). The disadvantages & advantages of activity-based costing. Small Business - Chron.com. Retrieved September 16, 2021, from https://smallbusiness.chron.com/disadvantages-advantages-activitybased-costing-45096.html.