Process Costing - The Hershey Company/ Kaiser Aluminum
Process costing is used mostly in companies when converting raw materials into homogenous products. A single product is produced on a continuous basis and all units of the product are identical. Costs are computed by department where the materials, labor, or overhead costs are added to the product in the processing department. Our two companies, The Hershey Company and Kaiser Aluminum, convert raw materials to their finished products of chocolate and aluminum. The Hershey Company's main raw materials come from cocoa products such as cocoa liquor, cocoa butter and cocoa powder that is processed from cocoa beans. They continuously make certain chocolate products under their brand name or franchise. Under their annual report it states that their cost of sales represents the costs directly related to the manufacture and distribution of their products. These costs are the raw materials, packaging, direct labor, overhead, shipping and handling, and warehousing and distribution facilities. Their manufacturing overhead includes salaries, wages, utilities, maintenance and property taxes. This shows why The Hershey Company would use process costing because their costs are traced to only a few departments and there aren't significant differences among the costs of various products. They are continuously making large batches of chocolate products and use an assembly line of mixing, refining, molding and wrapping to do it. Kaiser Aluminum has separate facilities for specific markets and processes. They use raw materials of alloy to create aluminum. Kaiser focuses on specific products of aluminum ranging from different sizes, shapes and quality. But they are constantly making aluminum. Both of these manufactures would use process costing because they are continuously making large quantities of the same identical product for each period. The costs are allocated to the units of the product in order to create an average cost...
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