The costing system is defined as the watchdog that is aimed at monitoring the costs that are incurred in a business. Commonly, the system mainly consists of a set of methods, processes, controls and compiled pieces of information that are intended to aggregate and also to report to the management about the revenues costs and the profitability of at a given company. There is a diversity of costing systems that companies may select to use in their operations. Among them include, absorption costing, job costing, process costing, direct costing and activity based costing. This study will discuss the most appropriate costing system method that Estella and stellar coffee producers should use in their firms and the benefits associated with each costing method.
Since Estrella produces a different type of coffee which first pass through an identical coffee roasting and grinding it is advisable for the company to use direct costing in its operations. Here the company should divide its cost into fixed and variable costs since the cost are fixed as a certain level of output (Mancini, Vaassen & Dameri, 2013). Here all the types of coffee produced can share the roasting and grinding cost, factory rent and other direct labour in the initial stage. However, after the finish of grinding each type goes in a different stage where variable cost can be attributed to the different coffee that is produced. The benefits achieved through the use of direct costing are that the company can accurately be allocated to the operating departments making the business to be more focused in production improvement (Bragg, 2005).
The Stellar coffee producers that used a wide range of application in the packaging of the materials should use the activity-based costing. There is a wide range of actions involved in the production and packaging of the coffee which is done differently. This means that some coffee type uses more cost than other. The ABC costing will allocate all the products and services all the costs that are incurred in producing them. This is done through the identification of the activities carried out and allocating the costs to these enterprises (Turner, and Weickgenannt, 2013).
References
Bragg, S. M. (2005). Inventory accounting: A comprehensive guide. Hoboken, N.J: John Wiley & Sons.
Mancini, D., Vaassen, E. H. J., & Dameri, R. P. (2013). Accounting information systems for decision making. Berlin: Springer.
Turner, L., & Weickgenannt, A. (2013). Accounting information systems: Controls and processes. Hoboken, NJ: John Wiley and Sons.
