Cost analysis and costing strategies are important both for manufacturing and service companies. However, the approach of manufacturing and service companies to planning and costing differs at all managerial stages. During the planning stage, for example, both manufacturing and service companies use cost data to prepare budgets and to determine optimal product price (Needles, Powers & Crosson, 2010). However, manufacturing companies also use cost information to plan optimal production volumes, while service companies use costing to determine their sales goals and human resource requirements (Needles, Powers & Crosson, 2010).
Manufacturing and service companies use costing information for various performance analysis purposes. Service companies rely on cost analysis to add or remove staff, to negotiate prices, to decide whether to add/remove services, or whether to keep the job internally or to outsource it to contractors (Needles, Powers & Crosson, 2010). As for manufacturing companies, they use cost information to make decisions about developing or discontinuing product lines, to add or remove shifts, to bid on orders and to negotiate selling or supply prices (Needles, Powers & Crosson, 2010). Manufacturing companies may also determine whether to use outsourcing or not based on cost information.
In terms of evaluating operations and costs, both manufacturing and service companies analyze similar things such as quality and cost dynamics, the difference between actual and target costs, unit costs (either of a product or of a service). Both kinds of companies use this information to make strategic decisions and/or to determine financial strategies (Needles, Powers & Crosson, 2010).
With regard to
reporting, the use of costing and financial information in service and
manufacturing companies is slightly different. Both company types use financial
statements to report to stakeholders. Manufacturing companies use costing data
in order to prepare inventory balances displayed on the balance sheet, and to
calculate the cost of goods sold and revenue displayed on the income statement.
Service companies use costing data to calculate cost of sales reported on the
income statement.
References
Needles, B.E., Powers, M. & Crosson, S.V. (2010). Financial and Managerial Accounting. Cengage Learning.
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"The terms offer and acceptance." freeessays.club, 17 May 2016
"The terms offer and acceptance." freeessays.club, 17 May 2016
"The terms offer and acceptance." freeessays.club, 17 May 2016
"The terms offer and acceptance." freeessays.club, 17 May 2016