Cost Analysis and ABC Costing for Flower Finesse Co. Report

This report provides a comprehensive cost analysis for Flower Finesse Co., examining cost classification methods and the implementation of Activity-Based Costing (ABC). The analysis begins with an introduction to cost classification, emphasizing its importance for effective financial management within the company. The report classifies costs based on expenses, operational activities, and objectivity, providing a framework for Mr. and Mrs. Long to make informed decisions. The core of the report focuses on the application of ABC costing, recommending its use due to the company's growth and financial challenges. The report details the ABC costing process, outlining the necessary steps from calculating overhead rates to allocating costs to product units. It also explains why ABC costing is the most appropriate technique, offering a clearer and more logical approach to determine product costs compared to traditional methods. References are provided to support the analysis.

Running head: COST INFORMATION FOR DECISION MAKING CASE OF FLOWER
FINESSE CO. 1
Cost Information for Decision Making Case of Flower Finesse CO.
Student’s (Name)
Institution

COST INFORMATION FOR DECISION MAKING CASE OF FLOWER FINESSE CO. 2
Introduction
The content of this paper analyses cost classification concept about the case of Flower
Finesse Co. owned by Mr. and Mrs. Long. To make the cost information meaningful for Flower
Finesse Co, cost classification is the most appropriate action (Lanen, 2016). Flower Finesse Co
being a production firm, cost classification is of the utmost importance for Mr. and Mrs. Long to
successfully manage the firm. Through cost classification, the firm will be able to make
important decisions relating to cost and costing within the Flower Finesse Co.
Question one:
Cost classification
Cost within an organization has got no value until it is classified into various groups. The
nature of the business results in multiple categories depending on the type of operation. The cost
can be classified by expenses nature, cost objectivity as well as the operational activities within
the firm. The classifying cost will be necessary for the firm as the organization will be able to
understand the whole production process.
Classification based on the nature Expenses
Classification cost classification by the expenses will enable Mr. and Mrs. Long to
evaluate their costs promptly. According to the provided information the company in question is
currently suffering from difficulties in organizing timely workers compensation a sector which
require evaluation (Bouwens, 2017). Through cost classification based on expenses, the firm
will be able to evaluate the expenses related to labor cost both direct and indirect. Cost

COST INFORMATION FOR DECISION MAKING CASE OF FLOWER FINESSE CO. 3
classification will also enable Mr. and Mrs. Long to organize in prior the salaries for the direct
workers as well as the flower suppliers. The employed accountant should, therefore, help the
company by classifying costs related to salary payment instead of just working on legal
obligation of the firm (Bennett & James, 2017). Classification of labor cost under the expenses
will enable the management team to pay workers within time.
Classification based on operation activities
This is a classification of the business cost based on the overall operation of the business.
Through this cost group, Mr. and Mrs. Long will be able to identify cost of every activity
(Manyaeva, Piskunov & Fomin, 2016). The management will be able to identify material cost
and overall production cost and the storage cost which will help them to minimize wastage an
help improve short supply products.
Classification based on objectivity
The company Flower Finesse is at its merge of expansion, the management of the
company can, therefore, operate smoothly through the adoption of cost classification based on
objectivity. The firm will be able to allocate and evaluate cost based on the objective of the
company like the desire to pay workers and suppliers within the time (Collier, 2015). Cost
classification based on this basis will enable Mr. and Mrs. Long to identify the cost of operation
based on expansion.
Costing technique
ABC (Activity-Based costing)
Based on the current development within the Flower Finesse Co, the most appropriate
costing mechanism to be applied is the ABC costing. Flower Finesse Co. operates on a number

COST INFORMATION FOR DECISION MAKING CASE OF FLOWER FINESSE CO. 4
activities which are aligned to come up with final product which is then sold to the market. ABC
costing technique is recommended for the organization based the ability of the technique to align
organizational resources as well as activities to the final project (Öker & Adıgüzel, 2016).
Activity-based costing technique based on various studies have been found to be one of the most
appropriate costing technique for large firms or companies at their merge of growth and
expansion such as Flower Finesse Co. in review of the case, it can be noted that the company is
facing various challenges relating to growth thus financial difficulty when coming to financial
allocation (Richards, 2017).
The company management cannot even ensure timely suppliers and employees
payments. Moreover, the organizations boss Mr. Long based on the current rate of expansion
have difficulty understanding how well the business is operating. The firm should, therefore,
consider Activity-based costing which will enable the manager to understand the whole process
of business operation together with their costs. Through the ABC costing technique, the
company will be able to track all the business process costs. The firm is currently not doing the
formal financial planning and is functioning based on the revenue estimates done by the manager
in his notebook while the company accountants only work to ensure that the company meets its
legal obligations (Bayati, Ahari, Badakhshan, Gholipour & Joulaei, 2015).
Based on the lack of proper accounting and costing technique, the company also suffer
management of the sales received from short supply products. The company cannot perform
quick costing for the short supply products thus the need for ABC costing technique. This
technique will enable the organization to sell short supply products to the first customer through
the door. The activity-based analysis will offer an opportunity for Flower Finesse Co to come up

COST INFORMATION FOR DECISION MAKING CASE OF FLOWER FINESSE CO. 5
with a system that will enable the Flower Finesse Co to organize every activity (Jiménez &
Afonso, 2016, December). The price business is seasonal as noted within the case; Activity-
based costing will, therefore, enable the firm to organize the product prices based on the seasons
to stabilize prices or the cost in each season by determining the cost of each activity. The
organization will also be able to offer best products with the favorable cost to the customer.
ABC costing implementation
The implementation of ABC costing in Flower Finesse Co will require a specific
procedure to be followed keenly. This technique involves step procedure where Flower Finesse
Co accounting team will use two steps procedure where the overhead expenses involved will be
allocated to respective activities known as pools (Al-Qudah & Al-Hroot, 2017). The cost within
the pools is then calculated and assigned to the cost of the product later to come up with a logical
cost per unit value. The theory of the ABC costing assumes that the cost of every activity is
reflected in the product cost. The steps to be taken by Flower Finesse Co should be as follows
for logical costing;
Diagram one:
The diagram below shows steps to be taken while implementing the ABC costing
technique

COST INFORMATION FOR DECISION MAKING CASE OF FLOWER FINESSE CO. 6
Step 1
The first step while undertaking the ABC costing is the calculation of the overhead rate
for every activity is the organization see figure the figure below:
Activity Calculations Overhead rates
Purchase
Material handling
Production setups
Inspections
Maintenance of
tractors and other
machines
Farm organization

COST INFORMATION FOR DECISION MAKING CASE OF FLOWER FINESSE CO. 7
Step 2
The step two of the study will be allocation cost of the every activity of cost pool
Activity Overhead
rates
Cost for
standard $
Cost for
specialty $
Purchase
Material
handling
Production
setups
Inspections
Maintenance of
tractors and
other machines
Farm
organization
Step 3
The third step of the ABC will be an allocation of the cost determined above into the cost
of flower production units as in the table below:

COST INFORMATION FOR DECISION MAKING CASE OF FLOWER FINESSE CO. 8
Standard $ Specialty $
Total cost
Number of products
Overhead cost per unit
product
Step 4
The final step of the ABC costing is the calculation of the cost per given unit area set the
table below;
Standard $ Specialty $
Direct material
Direct labor
Production overhead
Total cost per unit
For the Flower Finesse Co to manage the costing process, the management team should
adopt the above costing mechanism.
Question three:
Why ABC costing technique is the most appropriate technology for Flower Finesse
Co.

COST INFORMATION FOR DECISION MAKING CASE OF FLOWER FINESSE CO. 9
Based on the nature of the Flowers Finesse Co. business operations, the ABC costing
technique can be considered as the most appropriate technique compared to other traditional
costing techniques. This is because activity-based costing technique follows the clearest
procedure based on the type of the accounting system. The ABC approach will also enable the
firm accountants to come up with the most appropriate and logical cost for the company products
through utilization of each firm activity from the organization of the farm, plantation flower
harvesting processing and sales (Botha & Du Toit, 2017). The cost of each event is reflected at
the end of the operation compared to other traditional approaches which use more common basis
for costing.
References
Al-Qudah, L. A. M., & Al-Hroot, Y. A. K. (2017). The Implementing Activity-Based Costing
Technique (ABC) and Its impact on Profitability: A Study of Listed Manufacturing
Companies in Jordan. International Journal of Economics and Financial Issues, 7(2),
271-276.

COST INFORMATION FOR DECISION MAKING CASE OF FLOWER FINESSE CO.
10
Bayati, M., Ahari, A. M., Badakhshan, A., Gholipour, M., & Joulaei, H. (2015). Cost Analysis of
MRI Services in Iran: An Application of Activity Based Costing Technique. Iranian
Journal of Radiology, 12(4).
Bennett, M., & James, P. (Eds.). (2017). The Green bottom line: environmental accounting for
management: current practice and future trends. Routledge.
Botha, G., & Du Toit, E. (2017). The adoption of Activity-Based Costing in private health care
facilities in South Africa. Journal of Economic and Financial Sciences, 10(2), 338-355.
Bouwens, J. (2017). Understanding investment decisions: the role of cost accounting.
Collier, P. M. (2015). Accounting for managers: Interpreting accounting information for
decision making. John Wiley & Sons.
Jiménez, V., & Afonso, P. (2016, December). Risk assessment in costing systems using costing
at risk (CaR): An application to the Coffee production cost. In Industrial Engineering
and Engineering Management (IEEM), 2016 IEEE International Conference on (pp.
1315-1319). IEEE.
Lanen, W. (2016). Fundamentals of cost accounting. McGraw-Hill Higher Education.
Manyaeva, V., Piskunov, V., & Fomin, V. (2016). Strategic Management Accounting of
Company Costs.