COST ACCUMULATION

When there is large production of comparable products and the costs associated with individual units of output cannot be distinguished from one another, process costing is utilized. To put it another way, each product's cost is presumed to be the same as every other product's cost. Costs are accumulated over a set period of time, summarized, and then uniformly distributed to all units produced during that period. Chili Mas Food Sdn Bhd uses process costing to produce their chili sauce. Since the production of chili sauce is identical and has mass production, the cost of the sauce can be estimated fairly accurately using the average cost of all units produced. The table below will show total direct material cost, total direct labor cost, total manufacturing overhead cost, total manufacturing cost and cost per bottle of chili sauces for production of chili sauce incurred every month. The unit production of chili sauces every month is 18,000 bottles 2.4kg per bottle

Total Direct Material Cost

RM 46,192

Total Direct Labor Cost

RM 13,600

Total Manufacturing Overhead Cost

RM 15,808

Total Manufacturing Cost

( RM 46,192 + RM 13,600 + RM 15,808 )

= RM 75,600

Cost per Bottle of Chili Sauces

( RM 75,600 18,000 )

= RM 4.20 per bottle

The production of chili sauce can be divided into three main departments. First, the Soaking and Grinding Department. Second, the Mixing and Cooking Department. Lastly, the Bottling and Labelling Department. At the Soaking and Grinding Department, the chilies are soaking in water for about an hour for the beginning of the process. Then, using the grinding tank, the soaked chilies will be ground into chili paste. The cost of chili sauce processed in the first department, the Soaking and Grinding Department, is transferred to the Mixing and Cooking Department. Cost from the first department which is the Soaking and Grinding Department will become a part of the Mixing and cooking department because the cost of the first department was transferred. The paste from the Soaking and Grinding department will be used in the Mixing and Cooking Department. The paste will be mixed with other raw materials such as starch, sugar, and salt. The cooking process will commence in the cooking vessel once the raw materials have been well combined with the paste. Once the Mixing and Cooking Department finishes with the process, the cost from the Mixing and Cooking Department will be transferred to the Bottling and Labelling Department. Before the sauces are passed to the Bottling & Labelling Department, a quality inspection will be performed to assess the sauce's quality, including viscosity. Finally, the chili sauce will be placed into the processing tank, where it will be bottled and labelled. Then, the chili sauces will be ready to be sold on the market. Direct labor and manufacturing overhead resources are used consistently throughout the process in all areas. Because each unit of product is practically identical, costs are passed from one department to the next at an average unit cost for the department.

SUGGESTION AND JUSTIFICATIONS

Having a proper costing system helps a company reduce costs and generate profits.Also, helps enhance the company's internal performance. First, Chili Mas Food Sdn Bhd can change to multiple predetermined overhead rates since the company is using a single predetermined overhead rate. Each manufacturing department may have its own predetermined overhead rate in a multiple predetermined overhead rate. While more sophisticated, such a method is thought to be more accurate. Because it can represent disparities in how overhead expenditures are incurred across departments. In departments with a lot of machines, for example, overhead can be assigned depending on machine hours. When several predetermined overhead rates are employed, each department's overhead rate is applied to each job as it moves through the department.

Second, Chili Mas Food Sdn Bhd should change their allocation base from direct labor hours to machine hours since the place where chili sauce is produced is fully mechanized and the company is a manufactured company . This mentions that the company relies more on machines than human workforce. Machine hours are likely to boost overhead costs. The higher the overhead expenses, the more machine hours are used. As a result, the allocation base would be machine hours. Machine hours provides useful data for estimating cost of production, setting standards and for fixing selling prices for quotations. Machine hours are also the most scientific, practical and accurate method of recovery of manufacturing overheads.

Next, Chili Mas Food Sdn must make a management risk which is Chili Mas Food Sdn Bhd must have funds for the risk during recessionary time so that it will not ruin the financial reputation. The process of discovering, assessing, and controlling threats to an organization's capital and profitability is known as risk management. Financial uncertainties, legal liabilities, strategic management failures, accidents, and natural disasters are only some of the hazards or dangers that could arise. Sometimes a business may face a risk of an expected, unfavourable incident that could cost the company money or force it to close down permanently. Chili Mas Food Sdn Bhd might use risk management to try to prepare for the unexpected by reducing risks and extra costs before they occur.

Lastly, Chili Mas Food Sdn Bhd should change from process costing to ABC costing. ABC costing is simplified from activity-based costing. Process costing sometimes fails to adapt with the changing business environment. Process costing systems are less accurate than activity-based costing methods. This is due to the fact that they offer a more detailed breakdown of indirect costs. Activity-based costing systems, on the other hand, are more difficult and expensive to implement. Activity-based costing is a more precise approach of estimating the cost of a product or service, resulting in more precise pricing decisions. It improves managers' understanding of overheads and cost drivers by highlighting costly and non-value-adding operations, allowing them to be reduced or eliminated.

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