Hershey Company Costing system
First we need to analyze the Production stages for Hershey’s Chocolate. At Hershey several sequential stages for production of chocolate are:
Fermentation; In this stage Cocoa beans are put in heaps for around a week to make the cocoa flavor.
Roasting; in this stage cocoa beans are roasted.
Hulling; In this stage a machine is used to separates the shell from the bean.
Milling; the nibs are mixed with chocolate liquor.
Mixing; Cocoa butter, milk and sugar are mixed with chocolate liquor. Then the mixture is dried into a powder that is known as chocolate crumb.
Molding; Heavy machines are used to fill molds with chocolate.
Packaging; Cool candy is then wrapped, packaged and shipped.
After analyzing the production process in detail as per assessment Hershey should use a process costing system, it is producing identical units in batches and employing a smooth and ongoing process. Process costing systems requires using work-in-process inventory accounts focusing on each process.
Thus, Hershey should track its production costs using some work-in-process inventory accounts with each stage of production. Work-in-process inventory means an asset that is in the process of production and not yet categorized as finished products. In a production concern, raw materials would be converted to finished products by using labor and overheads. Labor cost and overhead are not easy to trace, but raw material cost could be traceable with the help of finished products. Manufacturing overhead costs can be variable in nature we need to apply overhead costing algorithms.
