Finance and Management Essay Example | Topics and Well Written Essays - 1750 words

Finance and Management - Essay ExampleProduct monetary value involves the determination of the cost incurred in the manufacturing of goods or formulation of services. Manufacturing organizations, just as Worplestrop Partnership has to determine their convergences be for two reasons. First is for decision-making and for the reason of external reporting. In manufacturing their products, Worplestrop Partnership would incur material costs, labor costs and other overhead costs that are associated with the manufacturing of the products (Hansen, Mowen & Guan, 2009). In determining the product cots for decision purposes, an organization will only use relevant costs to become at the cost of a product. This form of be mode is referred to as direct costing order. In this case, only the variable costs will be included since they are the ones that can influence the management decisions. Management has control on the costs and can formulate and implement decisions that can reduce the cost e lements and addition the returns of the company (Baginski & Hassell, 2003). On the other hand, Worplestrop Partnership has to determine the product costs for the purposes of external reporting. Here product costs are determined to process arrive at the best outlay to charge for the manufactured products. All the costs that are incurred by the company including the overhead costs and other touch on costs are apportioned in order to charge them on the consumers of the manufacturing companys products. This form of costing is referred to as absorption costing or total costing in which all costs direct and indirect, sunk, and future costs are apply in settling at the selling price of the products. Absorption costing has the advantage of considering all the costs incurred by the business since even the fixed costs are incurred for the purposes of manufacturing (2002). Worplestrop Partnership should therefore calculate the product costs using the two approaches for the realization of the two different objectives i.e. management use and external decisions. for the purpose of setting the product prices, Worplestrop should use absorption costing because it incorporates all the costs incurred by the business hence elaborate. Apart from the two costing methods, Worplestrop partnership could also use the activity based costing method or throughput method. In activity-based method, the organization will charge the overhead costs to the departments depending on the level of activity and the cost drivers. Here, Worplestrop would determine all the activity that increase the costs and determine the factors that increases the costs of the activities. From there, the management will allocate the overhead costs to the centers. This method will make managers control the costs and eliminate the spare activities that do not add value to the business hence increasing the efficiency and effectiveness of the business (Hansen, Mowen & Guan, 2009). The method has widely been used by galore(postnominal) organizations despite the fact that it is complex. The last accounting method is the throughput method in which the product price is determined by adding only the material costs used in the manufacturing of the products. All the other costs are expensed and are not included in the calculation of the final price. This method is easy to simple to use. However, the method is not recommended by the generally accepted accounting principles and should therefore not be employed. This