An introduction about the product and its production stages
The paper will review the production stages of shoemaking. Further, it will discuss the various costs that are incurred in the production of shoes. The costs will be classified into various categories, these are direct, indirect, variable, and fixed costs. Before manufacturing shoes, it is important to evaluate the target price, the features of the products, and the target market. This will also entail coming up with the production technology to be used in the production process. The manufacturing of shoes goes through seven distinct processes. The first stage is cutting the materials into different sizes and patterns. The second stage entails stitching the section of the shoe that is above the sole. The third stage is stock fitting to make the sole. The next stage is lasting and it makes an attachment of the upper fabric to the sole. The fifth stage is fixing of heels which puts together the heel and the final form. The sixth stage entails carrying out finishing the shoe. The final stage is treeing. At this point, several accessories are attached to the shoe.
The resources needed for the manufacturing
The resources that will be required for manufacturing the shoe will be in the form of structures, equipment, and materials. However, it will be assumed that the production plant has already been constructed and fitted with the necessary machinery and equipment. The materials that will be required for the production are fabric, plastic, rubber, foams, metal, textiles, and leather.
The costs
Cost refers to the money paid for the expenses that relate to the production of the shoes. The costs that will be incurred for the manufacturing of the shoes are materials, labor, electricity, fuel, repair and maintenance, factory overheads, administrative overheads, sales costs, distribution costs, interests, and depreciation.
Direct
These are costs that can be recognized and assigned to the units produced. The direct costs are materials and labor.
Indirect
These are the production overheads. The indirect costs cannot be attributed to a single unit of shoe produced. The indirect costs are; electricity, fuel, repair and maintenance, factory overheads, administrative overheads, sales costs, distribution costs, interests, and depreciation.
Variable
These are costs that change with a corresponding change in the number of units produced. The variable costs will increase as the number of units produced increases and decrease as the number of units produced decreases. The variable costs are material and labor.
Fixed
These are costs that are incurred by the company irrespective of the number of units produced. The fixed costs are administrative overheads, sales costs, distribution costs, interests, and depreciation.
Cost object
The cost objects for the production of shoes are labor (measured in terms of per man per hour) and materials (measured in terms of dollars per unit).
How the manufacturing overheads are being assigned
The allocation bases for the manufacturing overheads are summarized in the table presented below. This will be based on the assumption that the company uses activity-based costing to allocate costs.
Period costs
Period costs refer to those costs that cannot be allocated to a specific. In most cases, the period costs related to selling and general administrative expenses are recorded in the period in which they are incurred or against the sales revenue they relate to. The period costs the sales costs and administrative expenses.
Does the product belong to job order costing or process costing system?
Under job order costing, the costs are accumulated by job while under process costing the costs are accumulated by the department. Under process costing, the costs are allocated to the production process. Therefore, the product belongs to the processing system.