Byron Manufacturing is a firm that produces 5,000 Saucepans utilizing variable cost per unit. The direct material costs $50, direct labor costs $120, and variable overhead costs $30. In addition, the fixed cost is $100,000. First is calculating the product cost applying the absorption costing approach. It commences by computing per-unit costs by adding the direct materials, direct labor, and overhead costs ($50 + $120 +$40 = $210).
There is also a need to compute per unit costs based on fixed overhead. Besides, the fixed overhead per unit overhead may be employed in the costing. It is computed by assuming the fixed overhead costs and dividing them by the number of units ($100000/5000) =$20). In calculating the absorption cost per unit, we have to add them all ($210+$20 =$230) (Taschner & Charifzadeh, 2016). Besides, the absorption costing accounting approach permits a firm to determine the correct selling price per unit.
Let us assume that Byron Manufacturing has this desire to generate a profit of $300000 by generating 10000 units and each product costs $230 to produce. In calculating the accurate selling price, the profit should be divided by the number of goods or products ($300000/10000 =$30). The next step would be to add to the product cost to get the appropriate product price ($30 +$230 =$260). The total product selling price would be $260. According to the computation above, 10,000units would require to be created to meet this selling price.
Further, I decided to apply absorption costing as it is regarded as the full costing approach. It applies direct workforce and raw material costs as well as variable and fixed production costs to the final product. The price remains with the manufactured goods until it is sold and recorded in the income statement as the cost of goods sold. I did not also apply variable costing. Variable costing applies all variable production costs and direct costs at the product manufacturing end (Taschner & Charifzadeh, 2016). After selling the manufactured goods, it is charged on the profit and loss account as the cost of goods sold (COGS) and the overhead expenses are charged when they are incurred.
Process costing is another costing approach that I did not select. Process accounting is applied to those manufacturing firms that have specific conditions. Byron manufacturing firm produces saucepans that are not regarded as homogeneous. The saucepan may come in different types of styles and looks. For Byron to use the process costing approach, the product would have to be indistinguishable. Lastly, I did not apply the traditional costing or ABC costing as both approaches approximate the overhead costs that are associated with the costs, and products are allocated to a cost driver (Taschner & Charifzadeh, 2016). Traditional costing or ABC costing approaches have accuracy differences and complex calculations.
Ethical considerations are concepts such as cost allocation, overproduction, asset replacements, and conflicting interests. In any enterprise, one wants to be assured that the company hires ethical accounting individuals. Cost allocation is an area that may become unethical when accounting statements of a company are incorrectly allocated. It may damage and distort the relationship of a client as clients are being overcharged in the contracts (Akram Ahmad & Obeid Al-Shbiel, 2019). Overproduction happens if accountants select approaches that enhance operating profits even though it lowers period costs and increases final product inventory.
Akram Ahmad, M., & Obeid Al-Shbiel, S. (2019). The effect of ethical leadership on management accountants’ performance: The mediating role of psychological well-being. Problems and Perspectives in Management, 17(2), 228-241. Web.
Taschner, A., & Charifzadeh, M. (2016). Management and cost accounting. John Wiley & Sons.