The company that I am deciding to use for this an assignment manufactures posture walkers for used mainly for children with cerebral palsy or other walking difficulties. I will call this company Darion's Walkers. They produce good quality walkers for children who may need assistance with their walking when going long distances with their cerebral palsy walkers or help balance their weight while walking. Due to personal experience, I have notice there is a high demand for reliable high-quality walkers that are not too expensive that even insurance will cover in children's personal and school life. The materials that would need to be used high quality aluminum, buckles, wheels, seat and other items. Darion's Walkers will have about 10 workers that are specialized in helping create each walker that is custom fit for the child's height and weight. There will be a total variable cost of the walker at $37.00

Associated cost for the walker would be.

Direct Materials: $10.00

Direct Labor: $20.00

Manufacturing Overhead cost: $7.00

Darion's Seaters should sell each one of their customize walkers for $100.00. If each walker is sold at that price, with the variable cost of production being $37.00 it could bring in a profit of $63.00. This is calculated simply by taking selling cost minus cost of the walker. With other companies that sell posture walkers for these children they average about $62.00 to $286.00, so I feel this would be a good medium to sell the posture walkers. This way families a better chance to afford it themselves or better chance of insurance covering the cost and schools can obtain more than one.

Darion's Seaters would produce about 1,500 posture walker to meet the deal cost. In order to figure our what the labor cost would be to produce that amount, we would have to take our works which is 10 multiple by amount producing which is 1,500 giving a total cost of 15000. Our total production cost is $48,000 to produce 1,500 walkers. The cost for producing all the 1,500 units would be:

Direct Material cost at $10 per unit multiply by 1500 = $15,000

Manufacturing Overhead cost at $7 per unity multiply by 1500 = $10,500

Direct Labor cost at $20 per unit multiply by 1500 = $30,000

The total cost to produce 1,500 walkers would equal out to $42,000.

Costing method Choice

The cost accounting system I think fits perfectly with the posture walkers is Job order costing. Job order costing separates the accumulating cost for each job. This accounting system is best used for manufacturing companies that deal with medical services, furniture, and retail companies. Its best used for job that will vary dramatically, which will be the case when producing these posture walkers. Job costing will only create products when they are requested by clients to order. Therefore the profitability of each job will be shown individually and could be used for future reference. Then the employees will make an expense sheet that will separate the cost in categories in 3 which include the direct materials, direct labor and over heard cost. This cost account systems helps with managing the usage of all the raw materials, production equipment, as well as the labor hours. Eliminated a lot of unnecessary cost that could be wasted.

Costing Methods that will not work

Other costing method such as process costing would not work well with type of business. This costing method unlike job costing accumulates the costing separately from each process instead of each job. Process costing generally focuses on continual procedures which is far from what Darion's Walkers do. This type of costing is a recurring effect and produces at a mass production. So, this would work better if we were producing identical or similar walkers, which we are not because each walker must be specialized. Places such as Pepsi, petroleum, banks, food, etc. would use this costing method because they are done in bulk. Activity Based Costing (ABC) would not be a good fit for this business either.Activity based costing function more like process costing the way it allocates direct and indirect costing.It focuses more so on the activity than the cost. So, if a finished good product does not contribute efficiently it can ultimately be eliminated and that would take away from the cost. This costing does not give valuable insight on the actual drives of the companies cost and tends to ore time consuming than the three costing methods. With this method technology tends to be the major portion of production cost whereas with job costing it relies more so on direct labor of the product cost. Traditional costing systemwould be far from the ideal costing method to use. This costing method is to predict what the protentional profit would be. It uses a type of cause and effect method as well as considering direct, indirect and expenses within the business. The traditional costing method will first assign the cost to every department then it will assign the overhead of the walker. When using traditional costing method more than one product is compared. It looks at the labor that each product uses to figure out what it is spending. After that determination it will divide the cost and find what the indirect cost is per hours so it can apply it the product. This method is a lot more simple than other, but it is also a lot less accurate. Which accuracy is one of the most important aspects the company wants to maintain.

Ethical Considerations

When is comes to ethical considerations it is very important that a company takes that to heart. Now a day balance sheets can be easily manipulated. A company can easily manipulate their balance sheets to show "better profit" to try to entice stakeholder as well as shareholders. Creating this illusions can jeopardize not only the reputation but the business, but it can completely destroy it as well as the lives of the workers and investors. Everyone in the accounting department should be held to a high standard when it comes to being ethical with their reports and job-costing would be the most suitable way for the walkers to be produced.

What is an example of a decision that i could make using either the IRR or Payback method of analysis. Why ?