Production Cost and Control Analysis for California Car Company

This report provides an analysis of production cost and control methods, focusing on overhead cost measurement through ABC costing and traditional methods. It discusses the application of these methods in the context of California Car Company, examining direct material and labor costs, and the impact of production changes on unit costs. The report suggests the adoption of ABC costing for improved overhead cost allocation and decision-making. It covers manufacturing costs, inventory valuation, and the importance of accurate cost accounting in the automobile industry.

0PRODUCTION COST AND CONTROL
Production Cost and Control
Name of the Student:
Name of the University:
Author Note:

1PRODUCTION COST AND CONTROL
Table of Contents
Answer 2..........................................................................................................................................2
Answer 5..........................................................................................................................................2
Answer 7..........................................................................................................................................3
Answer 8..........................................................................................................................................3
Reference:........................................................................................................................................5

2PRODUCTION COST AND CONTROL
Answer 2
The overhead cost is measured through two method one is ABC Costing and other is
Traditional method also known as Absorption Costing. Manufacturing overhead costs indicates
to the cost in a manufacturing concern other than direct labor and material. Total output increases
the variable manufacture overhead costs. In tradition method, cost is calculated on annually basis
starting of the financial year. In this method, estimation that is concluded from analyzing the
past overhead costs a prearranged overhead rate. Grounded on historical yearly overhead costs,
organization would approximation entire overhead costs for the present year. Grounded on
previous yearly working movement, organization would guesstimate entire operating action for
the existing year. The operating motion would be an action sordid, such as direct labor hours or
machine hours or direct labor cost. Using these estimations, the prearranged overhead rate equals
assessed entire yearly overhead costs alienated by assessed entire annual operating action. This
technique of absorbing overhead is utmost suitable in a labor-intensive cost center. Furthermore,
it is easy to practice. Today, utmost manufacture approaches comprise considerable use of
equipment and so the labor period technique may develop progressively unsuitable. Therefore,
direct labor hour is a good choice for a variable overhead activity measurement about California
Car Company. ( Mahal & Hossain , 2015).
Answer 5
In absorption costing direct materials come under production head, and after that cost of
direct materials are reassigned to work in progress account (WIP) from raw material account. In
case of direct labor cost, as these costs are incurred they are transacted under expenses head. As
the wages are paid to the labor during the year those payment amount are assigned to work in

3PRODUCTION COST AND CONTROL
progress head. As the direct labor hours decreases in sedan rate of per compact changes as the
variable cost estimated depending on the labor hour of the production. Decrease in labor hour of
sedan reflects in the work of labor in manufacturing compact.( Mahal & Hossain, 2015).
Answer 7
Manufacturing cost is concerned as indirect cost referred as cost that are indirectly related to
factor. These are included as because production of products take place. As direct material and
labor manufacturing cost of production shall be in included in the cost of per unit. This shall be
done so as to value and report the figure of inventory and cost of goods sold according to the
prescribed principles by GAAP and IAS. Under manufacturing cost, cost of electricity,
equipment, and other expenses related to the production. This also results in individual
profitability of the product. The price of compact changes due to decrease in the production of
sedan because it effects the manufacturing cost. The manufacturing included in the total
production of both the cars are borne by the company together. Therefore, the impact is bored by
the cost of compact per unit.
Answer 8
The cost accounting of cars is not appropriate on California Car Company. Mary Jones, head of
accounting for CCC is suggested to opt for ABC costing as it is most suitable method of costing
regarded in automobile industry. The method allocate the cost driver for particular activity
occurred in the production. Mainly the cost drivers are regarding the transaction type, time
driver, and intensity drivers. ABC costing is exclusively for the determinations of counting costs
of product cost objects strength be well-organized. Yet, it is distant more shared for activity costs
to be largely secure in character. Under these circumstances, a cost driver is merely an

4PRODUCTION COST AND CONTROL
instrument of cost apportionment. Application of ABC costing shall improve the area of
overhead cost allocation. This can be done through simple calculations but ABC effectiveness is
unbeatable for apportioning project management costs or those for a sales department. The
implementation of ABC costing has the two major advantages primary, an enhanced considerate
of process and activity costs, permitting executives to make choices in order to elevate the costs
of an activity. Then, properly enumerating the charges of separate manufacture activities. As the
manufacture of specific products comprises of dissimilar processes, the ABC system is capable
to exactly describe the method in which a produce goes through the numerous processes, as well
as precisely manipulative the costs of those processes.( Aurora, 2013).

5PRODUCTION COST AND CONTROL
Reference:
Aurora, B. B. C. (2013). The Cost Of Production Under Direct Costing And Absorption
Costing–A Comparative Approach. Annals-Economy Series, 2, 123-129.
Mahal, I., & Hossain, A. (2015). Activity-Based Costing (ABC)–An Effective Tool for Better
Management. Research Journal of Finance and Accounting, 6(4), 66-74.