Currently, the entity has not classified miscellaneous costs such as royalties and packaging costs under appropriate heads such as variable overheads, direct material, etc., rather direct material and overheads are included in the total cost of production on an approximate basis. Since the costs of direct material and overheads are not determined accurately, there is a big risk that the company might not produce competitive bids and unreasonably high prices are quoted to the insurance company. Therefore it is highly recommended that firstly the entity should classify accurately the costs associated with the product into fixed and variable. Secondly, the actual charge is (should be) considered rather than standard costs, as it should be able to measure its actual cost of production.
It is recommended that the entity should consider using marginal costing method as it will allow the management to derive more relevant &. important information for the purpose of decision-making. Information such as Contribution per unit, Break-Even Sales (in units &. value), Net Profit per unit and total can be of significant value to the management.
In the era where companies are moving towards modern and world-class business principles and reporting methodologies, there has been, since three decades, a significant debate on the validity of traditional absorption costing method in today’s decision-making process. What are relevant costs when taking decisions relating to increasing the velocity of the operating cycle and what are costs that are relevant solely when consideration is given to company objectives, goals and strategies? (Samford University, School of Business, Birmingham, Alabama, USA) We at William &. Co. Consultants have made a feasibility study on the implications and benefits of implementing throughput accounting at BITE ME.
"Throughput Accounting provides managers with a fresh set of eyes to identify and control bottlenecks. The drum, buffer, and rope will become part of the cost accounting lexicon in the future”, says Geoffrey Garland, Controller, StacoSwitch, Inc. (Steven Bragg).