Ceylon Biscuit Limited

2.0 Classification of cost and costing Methods

2.1 Identifying the Cost of the new product

Ceylon biscuit limited is one of the leading companies in Sri Lanka. According to company objectives, it is one of the main tasks to introduce at least one new product to the market in a year. To achieve the aforementioned company objective, author try to develop a new product and identify & classify the different types of cost involved in the new product that the company is going to develop and introduces to the Market for the year 2016.

New Product

Image 1 New Product

A Chocopie is one of the most common fast foods in the world; mainly spread in eastern Asia, Western countries and Korea. This is a snack cake which consisting of two small round layers of cake with delicious marshmallow filling and chocolate covering, similar to a pie. Since Choco pie is a quick snack, this may lead customer to fulfill their basic human need like hunger in a busy culture. In addition Children will need tasty, sweet snack rather than a spicy heavy food. At the same time, attitudes on quick foods, chocolate products will lead to purchase new product.

Product Details

Product Name: Munchee Choco pie

Flavors : Chocolate, Vanilla layered and Strawberry

Price : 40g is Rs.35.00

Ingredients : wheat flour, sugar, corn syrup, shortening, hydrogenated vegetable oil, cocoa powder, whole milk powder, gelatin, sodium bicarbonate, ammonium bicarbonate, salt, calcium phosphate, soy lecithin, vanillin and milk protein.

Weight : weight of each individual package increased to 40g.

Sizes / Package formats: 40g (01 pc), 160g (4pcs), 240 g (6pcs), 480g (12pcs)

Benefits

Helps to lower high blood pressure

Chocolate can prevent fat from clogging the arteries, so blood can keep flowing properly.

Reduce chance of getting heart-attack

Release endorphins & serotonin into the bloodstream and give the bodies’ natural “high”.

No cholesterol

Low in sodium

Low cost replenishing option

Often available in the school cafeteria and retail shops

Quick and potentially portable

It tastes great and kids typically love to eat chocolate

2.1.1 Manufacturing Cost of the product

Manufacturing cost are the cots that necessary to convert raw material into products. These are typically divided into three categories;

Direct Material Cost

This is the cost of the raw materials which will become a part of the finished good. Direct material cost for the Choco pie will be Wheat flour, sugar, corn syrup, shortening, hydrogenated vegetable oil, cocoa powder, whole milk powder, gelatin, sodium bicarbonate, ammonium bicarbonate, salt, calcium phosphate, soy lecithin, vanillin and milk protein.

Direct Labor Cost

Direct Labor Cost is the cost of salaries/wages of the employees, who were physically involved in the production process. The wages paid to individuals who involved in the process of converting raw materials to final product. In proposed new product, Bakers, mixtures, helpers can be considered as direct labor cost

Factory Overhead cost

This refers to all other costs incurred during the process of manufacturing a product, which cannot be directly traced to physical units in an economical feasible way. This can be any manufacturing cost that is neither direct materials cost nor direct labor cost. This includes indirect material cost, indirect labor cost and other indirect manufacturing cost. Factory Overhead cost for the Choco pie will be factory machine cost, electricity cost, Office rent, Packing expenses, Selling and distribution cost and administration cost, insurance cost etc.

2.2 Classification of the cost of a product

2.2.1 Direct and indirect cost

Direct cost Indirect cost

Cost of ingredients Depreciation of machinery

Direct labor cost Salary paid for supervises

Labeling cost Salary paid to Sales Managers

Table 1 Direct & Indirect Cost

2.2.2 Variable and fixed cost

Variable cost Fixed cost

Electricity Factory rental

Packing expenses Depreciation on machine

Transportation cost Building rents

Table 2 Variable and fixed cost

2.2.3 Manufacturing and non manufacturing costs.

Manufacturing cost Non manufacturing cost

Indirect material Selling and distribution

Indirect labor Administration

Indirect expenses Finance

salary of supervisor

Lighting

Insurance cost of factory

Table 3 Manufacturing and non manufacturing costs

2.3 Costing methods

2.3.1 Job Costing

Job costing or job order costing is a classification for passing on manufacturing costs to an individual product or batches of products. In this method, each job is treated as a separate entity for the purpose of costing. The material and labor costs are complied through the respective abstracts and overheads are charged on prearranged basis to arrive at the total