Starbucks Factory Cost Accounting Policy

Document Type:Thesis

Subject Area:Accounting

Document 1

After the beverages are sold to consumers, the controller must keep reports to show that the costs were accurate and that the Company is generating income. Starbucks Company uses Job costing system in assigning costs to a particular unit or batch of coffee. It also uses the process-costing system, whereby the cost of the products is obtained using broad averages in assigning costs to identical units. The cost manager is responsible for accurate tracking of the costs incurred in production (Accounting tools, 2018). The cost controller must have a deep knowledge of the Company to ensure that it remains competitive. An advertising campaign for Starbuck is specific to a particular client. Job costing system assists in meeting these goals. The process of Job costing has seven significant steps. The first one is to identify the job selected as a cost object. The second step is to determine the direct costs involved in the job. The third process is using cost allocation method to allocate indirect costs. The fourth process is to identify the indirect costs associated with the allocation method. The fifth process is to compute the allocation rate used in assigning indirect costs. The sixth process is calculating indirect costs assigned to the job, and lastly, is to determine the total cost of the job by summing the total cost of indirect and direct costs (Accounting tools, 2018). Job costing system has three source documents. Job cost sheet records all accumulating costs allocated to a particular job. It also shows when the work begins.

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Material requisition shows detailed documentation of direct material costs on a specific job and to a specific department. The labor-time record shows labor time used in a particular job in a specific department (Accounting tools, 2018) Starbucks uses Job Order Cost System because there are different orders placed on beverages and packaging pin the Company. Costs are allocated to jobs to determine the price of beverages. To Starbuck, the labor associated with the project is a direct cost. On the other hand, if Starbuck purchases software and the software needs development applications, this is a direct cost. Majority of these costs are the labor and direct materials used in producing a specific product. For example, to create a product, the raw materials and electronic components are required. Starbuck uses LIFO and FIFO in tracking material costs in the production.

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Secondly, Starbucks needs to avoid materials since it may lock its capital which may make the company experience financial challenges in paying the creditors. Locking many funds into materials may make Starbuck experience shortages in its cash flow. The Company may value analysis and standardization in controlling material costs. Indirect Costs Indirect costs are expenses that go beyond the usual expenses while producing a particular product. Some of the costs include the cost of maintaining Starbucks. Indirect costs are also fixed and variable. Starbuck’s Variable indirect costs include electricity bills. Fixed indirect costs include rent expenses. Labor costs control These are controlled when employees finishes their tasks within the set time. Labor turnover may also be reduced to control labor costs. Depreciation on the Company’s equipment and buildings is another overhead costs.

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How these expenses are allocated to products determines the profit made by a certain product. Non-Manufacturing is also known as administrative overheads. They show the Company’s costs incurred other than actual costs incurred in manufacturing. Averkamp, 2018). To report a gross margin, a product’s selling price should be higher than the product’s total cost, and all factory expenses. The Company reports direct material, direct labor and factory overheads on the financial statements, with each showing the costs of each item. GAAP outlines that all manufacturing overheads should be reported in the Work in Progress in inventory part and finished goods inventory on the Company’s Statements of affairs (Accounting tools, 2017). The Company indicates the cost of goods sold on the profit and loss statement. Manufacturing overheads comprise indirect manufacturing-related costs and must be assigned to every unit produced.

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However, it does not bring the value of knowing the overhead costs. The recommended method is the overhead costs since it helps reduce the complexity of the factory. The factory overhead accounts are brought into a single cost center, and allocated using this method. Recordation of work can be minimized by charging immaterial factory costs to expenses incurred. Work Cited Accounting tools, (2018) Accounting tools. Retrieved from https://www. accountingcoach. com/manufacturing-overhead/explanation Gupta, R. Importance of cost accounting to business concerns. Retrieved from http://www.

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