Cost Accounting

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Assignment: Cost Accounting Applied

By

Professor Bryan Womack

Course Title ACC 350012VA016-1122-001 Cost Accounting

February 26, 2012

Companies that are successful financially know what their costs are and how those costs are being spent. The company I have chosen wants to change from a general accounting system where costs are put in general categories and they currently do not have any allocation of costs. I would like to explain the success my company could have when they implement using cost accounting in their operations.

Artis is a research and development company as well as a manufacturing company. Artis designs Active Protection Systems (APS) for vehicles. Their main purpose is to design and engineer a product that will protect vehicles from the threat of missiles. These Active Protection Systems are constantly being engineered and re-engineered as new threats and potential threats arise.

Artis has to research, design and engineer the product continuously. There developed different models version that can then be manufactured and sold based on the customer’s demand on the sale contracts. The major costs associated with the engineering of the Active Protection System are the costs of the labor (both labor spent on their facility and labor spent at government sites), the costs of the various specialized subcontractors, the costs of the materials and the indirect costs associated with those costs. The company needs to do several things relating to their engineering costs. They need to set up a job costing system in which each project is set up as a special job. Any costs that are directly associated with that job need to be kept track of by type. The only way for the company to know how they are performing on each of their sale contract is to develop a specific budget for those jobs. The project managers then have the responsibility of managing those costs for those jobs. The project managers need to have the responsibility of managing those cost for their project. They need to have a strong handle on what is needed for their job in addition to knowing what resources are available to them, specifically if they are going to use employees that will work across several projects concurrently. The project managers need to use the right amount of labor. They do not want to incur overtime charges. They also need to plan for lead times for the material they buy for the jobs. They need to make sure they procure the raw material will be available and be available at the right time.

The company needs to also collect indirect costs by what their functions are. The company’s fringe benefits have to be collected into a fringe benefit pool. Every employee who gets paid receives some portion of fringe benefits, whether it is payroll taxes paid by the company, leave paid by the company or group insurance paid for by the company. These fringe benefits are directly associated with labor. The company needs to allocate their fringe benefit costs to each job that has labor associated with it.

The company needs to have a similar pool set up to allocate the company’s overhead costs. The tricky part here is that the company has employees that work at their own site and also at the Government’s facilities. The reason why some of their employees work at the Government’s facility is because the Government is the biggest buyer of the Active Protection System they produce and they perform reviews on the product in order to make it meet the new challenges that face this nation. The cost of the facility including the insurances and everything else is fairly easy to collect. The challenging part is applying it correctly to the jobs that use the facility. Since the company uses employees at both locations, the company must allocate and collect the labor and the fringe costs of their employees at their...
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