Inventory and Nestle

Topics: Inventory, Cost accounting, Variable cost Pages: 7 (1982 words) Published: December 1, 2012
About Nestle
Nestlé is a multinational packaged foods company founded and headquartered in Vevey Switzerland. it is the world`s foremost Nutrition. Health & Wellness Company committed serving consumers all over the world. Their focus on responsible nutrition and promoting heaLth and wellness is a core value, emphasizing responsibility and sustainability. Nestlé products are sold in almost every country in the world.


Nestlé is dedicated to providing the best foods to people throughout their day. Throughout their lives, throughout the world. With our unique experience of anticipating consumers’ needs and creating solutions. Nestle contributes to your well-being and enhances your quality of life.”



Nestle is using STANDARD COSTING as a base for input measurement Standard costs are usually associated with a company’s costs of direct material, direct labor, and manufacturing overhead.

Rather than assigning the actual costs of direct material, direct labor, and manufacturing overhead to a product, nestle’ like many manufacturers assigns the expected or standard cost. This means that its inventories and cost of goods sold will began with amounts reflecting the standard costs, nor the actual costs, of a product Nestle’, of course still has to pay the actual costs. As a result there almost always differences between the actual costs and the standard costs, and those differences are known as variances,

Nestle is currently using Standard costing method because the related variances are valuable management tool. If a variance arises, management becomes aware that manufacturing costs have differed from the standard (planned. expected) costs. • If actual costs are greater than standard costs the variance is unfavorable. An unfavorable variance tells nestle’ management that if everything else stays constant the company`s actual profit will be less than planned. • If actual costs are less than standard costs the variance is favorable. A favorable variance tells management that if everything else stays constant the actual profit will likely exceed the planned profit. The sooner that the accounting system reports a variance, the sooner that Nestle management can direct its attention to the difference from the planned accounts.

Under a standard costing system. Production and inventories are reported at the standard cost—including the standard quantity of direct materials that should have been used to make the products. If the manufacturer actually uses more direct materials than the standard quantity of materials for the products actually manufactured, the company will have an unfavorable direct materials usage variance, If the quantity of direct materials actually used is less than the standard quantity for the products produced, the company will have a favorable usage variance. The amount of a favorable and unfavorable variance is recorded in a General ledger account Direct Materials Usage Variance. (Alternative account titles include Direct Materials Quantity Variance or Direct Materials Efficiency Variance.) Lets demonstrate this variance with the following information.

Direct Labor: Standard Cost. Rate Variance, Efficiency Variance

Direct labor refers to the work done by those employees who aciually make the product on the production line. (“Indirect labor” is work done by employees who work in the production area. but do not work on the production line. Examples include employees who set up & maintain the equipment.) Unlike direct materials (which are obtained prior o being used) direct Labor is obtained and used at the same time, This means that for any given good output, we can compute the direct labor rate variance. The direct labor efficiency variance, and the...
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