Product costing systems are methods used to manage inventories. Accounting systems primarily engage one of three costing systems at a time: job order costing, process-based costing, or activity-based costing.
1. Briefly explain each of the three costing systems in accounting. Discuss the situations in which each system would be best employed by a business. (125 words)
The materials covered this week distinguish between the different costing methods and provides needed tools for decision making. This case study focuses on determining equivalent units in a production business setting.
Generally Accepted Accounting Principles (GAAP), U.S. Securities and Exchange Committee (SEC)
Scenario: Davis Skaros has recently been promoted to production manager. He has just started to receive various managerial reports, including the production cost report you prepared. It showed his department had 2,000 equivalent units in ending inventory. His department has had a history of not keeping enough inventory on hand to meet demand. He has come to you, very angry, and wants to know why you credited him with only 2,000 units when he knows he had at least twice that many on hand.
Prepare a maximum 500-word informal memo and explain to Mr. Skaros why his production cost report showed only 2,000 equivalent units in ending inventory. Using a professional tone, explain to him clearly why your report is accurate.