Dream Chocolate Company: Choosing a Costing System
Analysis of D.C.’s Competitive Environment and Information Need
Dream Chocolate (D.C.) is a small company trying to survive in an industry with many competitors. The competitive environment comes from some factors. Firstly, D.C. bars are sold in specialty markets, fine gift stores and also available online. However, the competitive companies can also provide various chocolate bars for customers with the low price on the Internet. Secondly, comparing to the big chocolate company like Mars, D.C. is a small company that has the lower brand reputation. Therefore, there may be not many people would trust their products. On the other hand, facing this competitive environment, D.C. has
Process costing does not use direct allocation to apply business costs to individual goods, which will arbitrarily increase each item’s cost and also increases the consumer product price. Management accountants may also create under-costed products. Under-costed products usually result in lower business profits because goods are actually more expensive than actually reported. Other problem is that accountants must calculate equivalent units in the process costing system. Equivalent units represent the amount of unfinished goods left in a process at the end of an accounting period. This information is reported as the work-in-process on a company’s balance sheet. Inaccurate work-in-process accounts may also result in distorted finished good totals. This creates a difficult process for managing inventory and determining how many products the company has to sell in the open marketplace.
Operation Costing System
Operation costing is a hybrid of job and process costing, which is used in manufacturing goods that have some individual characteristics plus some common characteristic. An operation is a standardized method of making a product that is repeatedly performed. Operation costing is often used when different products use common processes but differ in their material.
The advantage of operation costing system is that some products are mass-produced and can be customized to order, which cost accountants