Cost Management Systems: Procedures, Costing and Activity Pools

This assignment solution delves into cost management systems, focusing on the procedures for converting raw materials into finished products, specifically soft-gel capsules. It examines the conversion process, highlighting the importance of resource availability, purification of raw materials, and final assembly and testing. The assignment differentiates between direct and indirect costs, providing examples of each within the context of soft-gel capsule production. Furthermore, it explores activity cost pools, identifying relevant pools such as quality control, packaging, purchasing, and labor costs, and the drivers associated with each. The provided solution offers a comprehensive analysis of cost management principles and their application in a manufacturing setting.

Cost management systems 1
Cost management systems
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Cost management systems 2
Cost management systems
Procedures for converting raw materials into a finished product
In operation system, production process involves various steps or procedures in which raw
materials are converted into the finished product by the manufacturing firm. Conversion of raw
materials into final products has been identified as the main objective of any profit-making
organization which is under product or manufacturing categories since it’s the final product they
offer to the market for consumption.
Conversion of raw materials into a finished product that is soft-gel capsules involves a series
of activities which ensures production of a quality product by the organization. Production
process thus conversion of raw materials into the final product being the man of objective and
operation activities of the manufacturing organization is considered very essential to the market
users since it aids to avail products in the market for consumption. The soft-gel capsules
manufacturing company is involved in the production of capsules products.
Procedures involved in conversion of raw materials in order to come up with a soft-gel
capsules involves availing of the raw materials needs into the company, provision of updated
manufacturing technology that is production machines and availing human resource to carry out
the whole process through handling and commanding the machines in order produce the desired
products which are safe for human consumption. (Jain, Balasubramanian and Srinivasan, 2016,
pg. 780).

Cost management systems 3
Availing production resources to the company is one of the main procedures involved in the
manufacturing of soft-gel capsules as it will help to save production time hence facilitates the
whole production procedure. The second procedure for soft-gel capsules production entails
purification and sorting of the raw materials to ensure that the materials used are of high quality
which will ensure production of quality products. This process will involve washing and cleaning
of the materials to be used in the production process and choosing the most qualified staff to run
the whole procedure. Sorted materials are then put into the updated production machine by the
most qualified operator to enable the production of quality products for the conversion process.
The last procedure in the conversion process is assembling and packaging of the final product
to make them ready for testing and inspection process. The product that is soft-gel capsules is
then taken to the final stage of laboratory testing to prove the product and test its quality before
being offered to the customers. (Kneese, Ayres and d'Arge, 2015, pg. 235).

Cost management systems 4
Part 2 assignment
Costing system
Direct and indirect cost
A direct cost can be defined as the price that can be easily traced or completely attributed to
the production of specific goods and services by the manufacturing company. The direct cost can
be accounted for during the process of production of goods and services. The direct cost incurred
by the management in soft-gel capsules production process includes labor cost, price wages,
insurance cover, quality control cost and depreciation cost of the manufactured product.
Indirect cost is production are costs incurred by the organization in the production process
but cannot be accounted for or attributed for. The indirect cost can be grouped as a fixed cost or
variable cost of a product since they cannot be easily accounted for. Indirect cost which is
associated by production of the soft-gel capsules includes accounting and legal expenses,
administrative salaries that are paid to the administrators of the production process, office
expenses like buying of the office equipment’s, rent, security expenses since the production firm
must be secured from intruders which might tamper with the whole process, telephone bills used
fir communication process among the staff members and utility bills. (Dale and Plunkett, 2017,
pg. 573).

Cost management systems 5
Activity cost pools
Activity cost can be defined as the accounting terms which are associated with a group of
accounts that serves in expressing the cost of goods and services which are allocated within the
manufacturing firm. Activity cost polls, therefore, can be defined as the aggregate of all costs
associated with performing a particular business activity. The activity cost pool associated with
the production soft-gel capsules includes quality control cost, packaging cost, and raw material
purchasing cost, labor cost, laboratory testing cost and utility costs. (Cooper, 2017, pg. 778).
Quality control cost is incurred while checking and examining the product by the local
authorities whether the soft-gel capsules produced are safe for human consumption. The driver
associated with the activity cost is product quality.
A packaging cost is incurred while packing and sorting the best products to the offered to the
market. Its main driver is the quantity of the soft gel capsules and the related pricing.
Purchasing cost incurred while buying the raw materials for the production process. Its main
driver demand for the soft-gel capsules in the market.
Labor cost is the salaries paid to the machine operators. Its main driver is the amount of
product produced per resource provided that’s raw materials.
The testing cost incurred during the lab test to ensure the effectiveness of the soft-gel
capsules produced. Its drivers are identified as the intended function of the product.
Utility cost like place utility entails transportation cost incurred. The main driver for this
activity is the market location.

Cost management systems 6
References
Cooper, R., 2017. Target costing and value engineering. Routledge.
Dale, B.G. and Plunkett, J.J., 2017. Quality costing. Routledge.
Jain, A., Balasubramanian, R. and Srinivasan, M.P., 2016. Hydrothermal conversion of biomass
waste to activated carbon with high porosity: A review. Chemical Engineering Journal, 283,
pp.789-805.
Kneese, A.V., Ayres, R.U. and d'Arge, R.C., 2015. Economics and the environment: a materials
balance approach. Routledge.