Part 11.1 Product Chosen - Hershey's Kisses.
Hershey's Kisses are a type of chocolate manufactured by The Hershey Company. The bite-sized pieces of chocolate have a flat-bottomed teardrops shape. Hershey's Kisses are wrapped in squares of lightweight aluminum foil with a narrow strip of paper protruding from the top.
1.2 Cost ClassificationBasis of classificationCost classificationsDefinitionsBehaviourFixed costsCosts remain unchanged in total despite changes in the level of activity.
Variable costsChange in total cost in direct proportion to a change in the level of activity.
Curvilinear costsHas a curved cost line, but is often approximated as a semi variable cost functionTraceability DirectCosts that can be traced to a particular responsibility centre are direct costs of that centreIndirectCosts that relate to responsibility centres, but cannot be traced precisely to specific responsibility centres are indirect costs of those centresControllabilityControllableCosts that are influenced by the decisions or actions of a managerUncontrollableCosts that are not influenced by the decisions or actions of a managerValue chainUpstream-Research and development costs , Design costs, Supply costsManufacturing/ productionAll costs involved in the acquiring of raw materials to the delivery of finished goods to the warehouse.
Downstream-Marketing costs , Distribution costs, Customer service costsManufacturing/ product costsDirect material-Material that is consumed in the manufacturing processDirect labour-The cost of wages and labour on-costs of staff who work directly on manufacturing a productManufacturing overhead-All manufacturing costs other than direct material and direct labourTiming of the expenseProductCosts assigned to goods that were either manufactured or purchased for resale.
Period Costs that are expensed in the accounting period in which they are incurred. E.g.: advertising costs and sales commission.
1.3 ExplanationsFirst and foremost, since Hershey is mainly using machinery in their production, so the machine hours will be the main cost driver for the cost of productions of Hershey's Kisses.
As for a chocolate manufacturer like Hershey, product costs are direct and indirect cost of manufacturing Hershey's Kisses; direct and indirect product costs to the production department could also be variable or fixed. For example, a supervisor on production of Hershey's Kisses and factory rental would be a direct cost, as these costs are directly involved in Hershey's Kisses productions. The supervisor's salary and rental fee is likely to be the same amount each month irrespective of the numbers of machine hours used, so it is also a fixed cost. In contrast, the supplies of raw material like milk and sugar and direct labour costs like machine operators' salaries will be a direct cost to the department, but these costs will be variable cost if the total amount of supplies used in the department increases as the activity in the department increases.
An indirect product cost is the electricity used by Hershey to operate the production machines which are costs that cannot be traced to Hershey's Kisses, as these costs often relate to more than one types of products, such as productions of Hershey's Chocolate bar that also using the electricity. The cost of the electricity is variable because the total electricity used is greater...