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Discussion Question:

Sport Aalaa Footwear (SAF) has been manufacturing footwear items for the last 60 years. Huge footwear market has been captured by SAF. Product reliability and competitive pricing policy has led one of its brand – Shoes to the sky. SAF footwear products are warmly welcomed by the customers in the markets due to its attractive designs, colors and comfort etc.

 

Recently, the management of SAF has decided to enter into manufacture and market sports shoes for men athletes running in the Regional Olympics. The new brand has been given the name of “Boots”. Although, there are so many companies in the World crafting shoes for professional athletes running in many Olympics in the world. SAF has a totally new system of crafting this proposed shoe in a unique style.

 

The new manufacturing process is intended to work in three phases – first, the customer (Olympic athlete) goes to SAF Olympic Fitness station, where the SAF employee develops an in- depth customer profiles. In the second phase, the customer goes to Olympic Shoe Design, where scanning of his feet is done through 3-D computer applications along with the personal choices and likings to be felt in the intended shoes.  Also, the customer is given the choice to select any design out of 260 fabricated shoes. In the last phase, all these specs are fed into a highly Automated Boot Manufacturing Machine (ABMM) to develop a prototype. This takes only 2 hours to finish. After this, the customer is invited to try this prototype and a test-run is offered to him on the SAF’s especially developed running track. Various goods or bads are recorded at the time by SAF’s especial teams. Later, upon formal approval from the customer, these findings are again fed into the machine. After 5 days, the ordered shoes are shipped to the customers.


SAF has set up a special division in the company to manage its new product. The division is given a special cost accountant for costing this new product. The accountant is well-aware of the modern costing techniques. He has developed a well-defined costing system and it is expected to work well.




Required:

You are required to identify the costing system using by SAF in the above case.  Support your answer with logical and factual reasons.

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Replies to This Discussion

wo to sab theek hai per masla ye hai k question ka answer question se b choota hai to ye kaisay 30numbers ka hua :(

baat asal me  ye ha k usnay sirf yehi poocha hai k konsa costing system apply karna chahyee or usi ki logics and reasons likhain to isme itni mushkil baat to nai lug ri mje sab kuj lecture me sir nay explain kia va hai achi traa se

lakin iskay logics me humnay direct material or labor ya FOH etc k baray me to kuj ni likhna na???ye lamba kaisay hoga me to yahi soch ri  :(

or iska 18th lecture k ilawa to kahin b info nahi haina 19th me job order costng and process costing ko differentiate kar k process costing ko hi define kia va hai 

Sadaf Noreen,

wqt badal chuka ha, ab studies may legnth nae daikhi jati, just ap ki logic or reason ki authenticity daikhi jaye gi, 150 words will be more than enough... baki batain students ko ocnfue krnay k liay hoti ha bus ;) don't take them seriously...

malik shakeel ur right job order costing because of prduct dfferentiation............. but the goods are standardised too.

i think is comparison ko study karo concept kafi had tak clear ho jay ga. aur is comparison kay mutabik gdb kay point dono is "job costing and process costing" se compare karo. I think concept mil jay ga. baki Logic find karna to koi bari bat nahi wo to handout may bhe de hoi han.

Job Costing

Process Costing

Production is against specific order from the customers.

Production is a continuous process based on future demand.

Variety of products are produced according specifications.

Homogenous products are produced in large scale.

Output and costs are not involved in any transactions from one job to another.

Output and costs are transferred from one process to another process.

Cost control is more difficult because each job is different from other.

Effective cost control is possible because production is standardized.

Cost ascertainment and determination of unit cost can be possible only when job is completed.

Costs are collected and accumulated at the end of the accounting period.

There is no question of work in progress at the beginning or end of the period.

Work in progress is always there because production is continuous.

My GDB, Dont copy just get idea

CASE STUDY: DESCRIPTION

Historically costs associated with individually customized products have fallen into the domain of job costing. SAF, however, uses a hybrid-costing system - job costing for the material and customizable components that customers choose and process costing to account for the conversion costs of production. The cost of making each pair of shoes is calculated by accumulating all production costs and dividing by the number of shoes made. In other words, even though, each pair of shoes is different, the conversion cost of each pair is assumed to be same.

The combination of customization with certain features of mass production is called mass customization. It is a consequence of being able to digitize information that individual customers indicate is important to them. Various products that companies are now able to customize within a mass production setting (for example, personal computers, blue jeans, bicycles) still require job costing of materials and considerable human intervention.


CASE STUDY: ANALYSIS

The case talks about using a combination of costing techniques: process costing and job costing. In traditional costing practices, job costing is used where the cost object is a unit or multiple units of a distinct product or service. Each job generally uses different amounts of resources and the costs are accumulated separately for each product or the service. On the other hand, process costing is where the cost object is masses off identical or similar units of a product or services. It is used to cost masses of identical or similar units.

In the case, there is mass customization. It entails a combination of costing practices. Customization requires job costing to be performed whereas the level of customization has made it possible for SAF to do process costing to account for the standardized conversion costs. This makes the whole system of costing much more efficient and applicable.

SCOPE

The hybrid costing system blends characteristics from both process and job costing. The trend to use the same has been emerging. The production systems in the recent times have grown in their degree of complexity. It has become difficult to classify the costing techniques in separate watertight compartments and use only one of them.

 

1.))  SAF new product boots launch kr raha hy, at the time of Olympics, to customer ki taraf se order nai mila balke SAF ka apna dicision hai  for new product. to ye process costing hai.

2.))  SAF is already making shoes and it is a standard product of SAF. and just launch another product of same business, BOOTS for athletics. so product is homogenous. just change of style, from dress shoes to sports shoes. to ye process costing hai

3.)) job order main cost sirf aik project tak rehti hay, jab k BOOTS banay k baad, ye sirf aik Olympic athelets team k liye nahi rahay ga, Olympics khatam honay k bad b yahi BOOTS in market available hon ge for other customer, those are not in Olympics. to ye process costing hai.

4.))         BOOTS ka patern cutting , department alag costing karay ga, oper walay hisay ko finish karnay wal dept main laces, lagany ka , color, stitching , alag cost ho ge, Finished Sole ki cost banay gi, Sole cutting, sole coloring, finishing ki cost shamil hu gi, -------Akhir main in sab dept ki cost add hu k one BOOT ki cost banay gi, tu ye process costing technique hai,

             jab is GDB main SAF modern technology machines use kr raha, jahan dift dept nahi, yahan machine k ander dift steps hai, jis main aik taraf patern cutting hai, dosri taraf top ki finishing hai, teesri taraf sole finishing hai, oor phir end py opper walay hisay ko sole se fixing, and finishing of BOOT hu gi, ------- laikin cost tu hr hisay ki hu gi , jo k bad main add hu gi. is liye process costing is the best.

Please isse zara parh k reply dain. kya theek hai,    -- --  specially tariq bhai oor koi bee....

5

i agree wid u ◄►☺♠♣IMRAN♥♦☻◄►™ bt ye sb process uswakt ho ga jb athelets usay order kren gay so......... think at this point

Orders that are unique in nature (products or services tailored to a specific customer, meeting their specifications---such as yacht making), incur manufacturing overhead costs that can vary considerably for each order. These are job order manufacturing overhead concerns. But process costing does not have this concern, a key difference between the two, as process costing incurs the exact same manufacturing overhead with every production run made through its assembly-line process.

i think both are used 

khalid bhai howa nain abi gdb?


The job order costing system is used when products are made based on specific customer orders. Each product produced is considered a job. Costs are tracked by job. Services rendered can also be considered a job. For example, service companies consider the creation of a financial plan by a certified financial planner, or of an estate plan by an attorney, unique jobs. The job order cost system must capture and track by job the costs of producing each job, which includes materials, labor, and overhead in a manufacturing environment.

In job order costing system, the main information that is use in this case are:-

  1. Job number
  2. Description and specification of the job
  3. Commencement of the production
  4. Name of the customer
  5. date of completion of the job
  6. direct material cost
  7. Direct labor cost
  8. FOH cost
  9. total cost
  10. per unit cost
  11. Sale price
  12. profit
  13. Efficiency evolution.

these are the things that are used in Job order costing system.

 innocent_doll thanks for sharing ur idea 

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