Ben and Jerry’s costing procedures and production expenses provide one of the best areas to investigate managerial accounting. Ice cream producer Ben & Jerry’s was founded in Burlington, Vermont, in 1978. They also have many retail locations across the world. Initially, the concept was a dream and a $5 ice cream-making correspondence course (“About Ben & Jerry’s,” n.d.). However, their company has expanded substantially over the years and reported millions in sales. Additionally, Ben & Jerry’s has a strong moral compass which has since elevated its reputation. The Board of Directors of Ben & Jerry’s delivered a clear declaration of unity in 2011 against the rising economic disparity, unemployment, mortgage fraud, and corporate influence in American politics (“About Ben & Jerry’s,” n.d.). Accredited organizations like the Women’s Rights, Black Lives Matter, and Climate Change movements are supported by Ben & Jerry’s and are ardent voting rights advocates. Generally, Ben & Jerry’s defends its principles while encouraging shared viewpoints among its business partners and personnel.
Manufacturers and other businesses use job order and process costing as two costing methodologies to determine the final costs related to goods, inputs, and services. Although they share a similar end goal, process costing is more frequently used in mass production. This is because it averages the entire cost of the materials and processes used to create the commodities, assuming the costs for each item are the same. According to Jacobson (2022), under this system, costs are assigned to comparable goods that are continuously mass-produced in large quantities. When utilized by firms like Ben & Jerry’s, it means that once the production of the ice cream starts, it continues until the finished product is produced. Processing is the same throughout the entire run, with the same quantity of ingredients, labor, and overhead. Generally, the completed pints of ice cream are identical to one another.
Job costing is an accounting technique created to assist firms in tracking the costs of certain activities and projects. Essentially, these tasks are considerably more compact than those that involve process costing. Companies are constantly lowering their manufacturing costs (Alami & ElMaraghy, 2020). The job costing approach is vital since it effectively aggregates expenses and allocates them to labor and material goods. The customer will also receive a thorough accounting of the labor and supplies used to accomplish the task using this manner. Job costing can provide more accurate pricing for small projects due to the nature of each method, whereas process costing can do the same for larger items. The cost would be significantly underestimated if a small business employed process costing instead of job costing because particular items, labor, and goods used would not be considered. On the other hand, if a large firm, like Ben and Jerry’s, adopted job costing, it would be overrun by the records and paperwork required to keep track of the production process.
Factory overhead is the cost that cannot be linked directly to the product through materials or direct labor. For instance, Ben & Jerry’s would have administrative wages, ingredients, benefits, insurance, rent, equipment depreciation, marketing tools, and utilities as part of its overhead. The setup, assembly, inspection or quality assurance, order entry, and customer services are some cost drivers that the organization could choose to allocate if it chooses to employ activity-based costing. This enables overhead to be explicitly assigned to particular tasks or services according to consumption. Generally, independent management and accounting unit can be established under a special purchase agreement to offer leadership focused on maintaining and advancing Ben & Jerry’s social product quality, reputation, and mission, while dealing with the overheads.
The Ben & Jerry’s Company must choose whether to use activity-based costing (ABC) or traditional techniques to categorize overhead costs. Manufacturing companies must look at the best way to allocate overhead expenditures (Alami & ElMaraghy, 2020). Ben & Jerry’s can use the ABC technique to pool costs to activities while supporting this initiative. The activity can be separated into batch and unit levels, which cover the entire production line. Additionally, they can create customer-level actions that produce ice cream for particular consumers.
I would advise Ben & Jerry’s to use the process costing approach because it is more precise and effective for big businesses that create goods in bulk, like ice cream. Based on the volume of goods sold annually, job costing would be considered to be time- and resource-intensive. Process costing is simpler when dealing with homogenous items, which is one of its key benefits. The amount of production system processes each good goes through determines how much money business owners allocate for those operations. Direct materials, labor, and manufacturing overhead are added to the total production cost during each procedure. Management accountants can divide the overall cost of the process by the total quantity of commodities that exit the process. Essentially, this yields an exact average cost for each product produced. Overall, an easier technique to account for expenses among similar items would be to use process costing.
About Ben & Jerry’s. (n.d.). Ben & Jerry’s. Web.
Alami, D., & ElMaraghy, W. (2020). Traditional and activity-based aggregate job costing model. Procedia CIRP, 93, 610-615. Web.
Jacobson, A. (2022). The nature of process cost systems. Andrew Jacobson. Web.