Chillout Corporation Essay

955 Words May 1st, 2011 4 Pages
After doing a thorough review of your current costing system and other costing systems as well, JBJ consulting, Inc. has concluded that standard costing is the best costing system for your company when used correctly. We have identified a few problems with your standard costing system that we would like to address. The first problem with ChillOut Corporation is the overall focus of the organization is too centralized around favorable variances. Managers are awarded bonuses for favorable variances and the computer software only notifies departments when there is an unfavorable variance. The department managers are the ones that determine these rates and are also the ones along with employees that are rewarded bonuses if favorable …show more content…
Even though we went into depth about the current problems in your standard costing system, we feel this is still the best costing system if you correct the problems stated above. We compared it to actual and normal costing. Actual costing system only uses actual costs incurred and allocation bases experienced; it does not use any budgeted amounts or standards. Normal costing is similar to actual costing but uses a budgeted amount for overhead. It may seem more logical to use actual costs but if production regularly varies it is difficult to have long-term expectations for overhead costs. It also makes it very time consuming to accumulate actual inventory costs at the end of each accounting period, so it is easier to create standard costs for valuation purposes. We did journal entries and ending balances for each costing system. This allowed us to see what the variances were for normal and standard costing. It also showed us the differences in the work in process and cost of goods sold accounts for each costing system. We prorated the favorable variances because these variances should be incorporated into the product inventory cost since the corporation efficiently used its capacity to produce the cases than initially expected. By prorating these variances to cost of goods it shows a more accurate overall profitability of the company.
Overall standard costing has the most advantages. It is very

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