Accounting

Type of cost accumulation system that was used at Shen’s Art Printing Co. Ltd (Taiwan)

The company uses job costing system to allocate its overhead for the purpose of setting the price. Job order costing is a system where by manufacturing costs are assigned to individual product or the batches of the product. It is normally used when products being manufactured differ from each other. This costing used by Shen is a historical cost method that is used to assign actual costs to job on the basis of realised cost rather than  cost and operating data that are predetermined.

Job costing system is used and how overhead is allocated

The company accumulated printing costs of operation in eight costs pools in the following manner: the direct labour which includes the salary, bonus for press assistant and operators.  The indirect labour that includes the bonus to printing management staff and their salaries. Supplies that include printing materials and ink. Costs related to equipment that include depreciation on plant and machinery, repairs, maintenance and insurance. Quality assurance and control of production, miscellaneous cost that include travelling, telephone, transportation, mail and newspaper. Since customers are billed separately for direct materials like paper and costs for preparing printing plate, this system puts focus on conversion cost only. The company employed an allocation system that involved two stages, where the costs accumulated in the pools were allocated to operation centres. Every printing machine is viewed as an operation centre. A different overhead rate is then established for each operation centre such that costs were allocated to jobs in the other stage.

Benefits to the firm.

The use of job order cost helped the company to easily allocate the overheads across the operation centres. Comparing the prices for magazines with old cost showed that magazines appeared to be more profitable. 

 

Reference

Rajiv D. Banker, Hsihui Chang, Chin S. Ou, Anne Wu(1999).Job Costing and Pricing: Empirical Evidence from a Printing Company. Retrieved from: http://citeseerx.ist.psu.edu/viewdoc/summary?doi=10.1.1.22.1098