1) Assume that you are the manager of the SBCC Campus Store. Upon reviewing your 2019/2020 Income Statement (July 1, 2019 through June 30, 2020)*  you concluded that your expenses are too high. Please list at least 3 variable and 3 fixed expense line items, which you want to decrease in the upcoming year and how you are going to do this. Please discuss benefits and risks (i.e. impacts on customers and revenues) of your cost cutting measures. 

As we are currently in a Pandemic, the Campus Store provides a lot of online services at this time. However, they are open four days a week now for 6 hours each day. 

2.In the lecture video I used Boeing and an imaginary company (Pear Co.) as examples to explain Job Order Costing. Please think about a real life manufacturing or service company (big or small) that would be a good fit for the Job Order Costing method. Explain why you feel that your company would be a good candidate for job order costing (hint: look at the criteria). Also, give at least one example each for direct labor, direct material and manufacturing overhead cost in your company.  Finally, explain what allocation base you would suggest for the calculation of the predetermined overhead rate and why. (Min. 150 words).

Once you wrote your post, please also comment on at least two other students' posts. When commenting on other students' posts please evaluate their choice of company and choice of allocation base. 

3.  In the lecture video I used Lay's Potato Chips and an imaginary company (Smith Co.) as examples to explain Process Costing. Please think about a real life manufacturing company (big or small) that would be a good fit for the Process Costing method. Explain why you feel that your company would be a good candidate for Process  Costing (hint: look at the criteria). Also, describe how you believe the units of product move through the processing department(s) and how  direct labor, direct material and manufacturing overhead cost are added in each department (keep in mind that direct labor and material in process costing are traced to processing departments rather than units of products).  Finally, explain what allocation base you would suggest for the calculation of the predetermined overhead rate(s) in your processing departments and why. (Min. 150 words).

Once you wrote your post, please also comment on at least two other students' posts. When commenting on other students' posts please evaluate their choice of company and choice of allocation base. 

4.In the lecture slides (Ch. 5 Part 1) we looked at several scenario's of how Racing Bicycle Co.'s net income would change if we made certain changes to variable and/or fixed cost. Cost structure is important, when it comes to chances and risks for our operating profit in good respectively in bad times..

Please describe two real life companies that you believe has a "High Fixed Cost Structure" and one that you believe has a "Low Fixed Cost Structure". Explain why you came to this conclusion.  Then describe what would happen to your companies' net income if
a) in one year they were able to double their sales
b) in one year their sales would drop by 50%.

 

Expenses, Process Costing, Job Costing, and Cost Structure

Variable and fixed expenses

            In SBCC Campus Store, we use the income statement to determine a net profit or net loss. To obtain the surplus or deficit, we list the income and subtract expenses. In the expenses, we could have both variable and fixed expenses. Variable expenses change, while fixed expenses are expenses that do not change (Pant, 2020). As the manager, I discovered some high expenses and I would like to decrease in the coming year. Some of the high variable expenses include; wages of part-time staff, advertising, and delivery charges; the fixed expenses include rent and utility bills. The benefits of decreasing these expenses, such as delivery charges, will increase more customers in my store, hence increasing revenue. We will reduce rent by moving to a cheaper building. However, this might be a risk since some customers might find it inconvenient to move to a different place. Another risk of decreasing advertising expenses might make advertising skills low and not reach a broader range of people. However, lowering utility bills such as electricity is a benefit to our store since revenue will increase.

Job Order Costing Method

            Job order costing is where the production costs are assigned to a specific manufacturing job and comes in handy where each output is different from others(Thakur,n.d). A real-life manufacturing industry that would be fit for job order costing is steel fabrication and designs. This industry manufactures specially ordered metal fabrications. I chose this manufacturing industry because all its products have various specifications, hence different costs depending on the allocated costs. In direct labor, the steels man gets an allocation for the labor cost. The steel man handles a specific fabrication with a particular design. Metal is primarily used in direct material. Therefore, in the overhead allocation, the method will be 75% based on labor costs incurred since all overheads were incurred in terms of the level of labor incurred.

Process Costing Method

            When there is mass production of similar products and the costs associated with individual units of output cannot be differentiated from one another, process costing is typically used.  The real-life manufacturing company that I would choose for process costing is food production. Food production would be a good candidate for process costing since food production involves homogenous products and a continuous flow. In other words, process costing will be best used for this company since it creates a flexible production process(Accounting Tools, 2021).  I believe the units of products move in physical units through cost flows in parallel. I would recommend the allocation base for calculating predetermine overhead rates by dividing the estimated manufacturing overhead cost by an allocation base. The reason for using this predetermined overhead rate is because this company will assign overhead costs to production when they assign direct materials and direct labor costs.

High Fixed Cost Structure and Low Fixed Cost Structure

            Entities in the low fixed cost structure, when the sales double the variable costs will also double simultaneously because the variable costs in these entities are high. The entities under high fixed cost structure, when the sales double the entities will have a high net profit since fixed costs do not change in any level of sales. These entities will hardly have a high net profit compared to high fixed cost entities but will have net profit more than usual.

            In the high fixed cost structure, when the sales made is 50%, it will not cover the fixed costs; hence the firms undergo a massive loss because the profits will be affected by fixed costs that do not change. Therefore, in the entities with a low fixed cost structure, when the sales drop by 50%, it will decrease the profit but not so much due to low fixed costs and high variable costs in this entity.