Direct costs, prior to being assigned to the company’s products, are first directed toward the appropriate department and then allocated to the products. For example, when allocating the cost of raw materials, the quantity consumed by each product is taken into account ( Figure 1 ).

With respect to indirect costs, Horngren et al. (2002) , identifies three different methods for their allocation: the coefficient allocation method, the homogeneous sections or cost center method, and the Activity-Based Costing (ABC) method .

The chosen method in this study is the homogeneous sections method, which is based on breaking down the organizational structure into basic units, referred to as cost centers, responsibility centers, departments, or sections ( Figure 2 ).

The full costing system involves the appropriation of all production-related costs, encompassing both fixed and variable expenses. This method accounts for the total expenses incurred by the company from the acquisition of raw materials through to the commercialization of finished goods. Costs are then proportionally allocated to the volume sold, thereby offering a comprehensive assessment of the cost structure and providing essential input for financial management and pricing strategies.

According to Deco & Gomes (2024) , when a company begins its operations or works based on customer orders (job order production), concepts such as beginning and ending work-in-process inventories or stock levels are not factored into the calculation of the total cost of finished goods. This is because production is executed upon demand, eliminating the need to maintain intermediary inventories.

Therefore, in demand-driven companies, such as those operating under a job-order production system—the calculation of production costs does not account for IWIPC, FWIPC, or inventory balances (initial or final). This is because production is executed according to the specific requirements of individual customers, eliminating the need for intermediary inventories or pre-produced finished goods ( Figure 3 ).

For well-established companies that produce standardized products in a continuous flow, the total cost of finished goods must include beginning work-in-process and exclude ending work-in-process. This ensures the accurate attribution of costs throughout the production cycle and enhances the precision of unit cost calculations.

Thus, Deco & Gomes (2024) assert that before applying the full costing method, it is crucial to identify the company’s production regime—whether series production or job order. In continuous production environments, the costs of work-in-process must be recorded from the outset to ensure proper measurement of the total cost of finished goods.

From this distinction arise two essential concepts in business cost analysis at the close of an accounting period: Cost of Production for the Period (CP) and Cost of Finished Goods for the Period (CPFG). These concepts are vital to ensure the reliability of accounting information, enabling efficient management of production resources and more accurate operational and financial strategies.

The total of industrial or production costs—including those incurred in the sale and distribution of products, plus non-manufacturing costs—constitutes what is known as Full or Total Cost. This feeds into the calculation of the Analytical Result, and with the deduction of taxes and fiscal charges, leads to the determination of Net Income, from a financial accounting perspective.

According to Deco & Gomes (2024) , for companies engaged in mass or series production, the full costing method considers that the Cost of Production (CP)—essential for the accurate determination of the Finished Product Cost (CPPA) stored in inventory—comprises the following elements: Initial Work-in-Process Costs (IWIPC), Cost of Raw Materials Consumed (CRMC), Direct Labor Costs (DLC), and General Manufacturing Overheads (GMO), which include both variable and fixed costs. In addition, the Final Work-in-Process Costs (FWIPC) are deducted to ensure that cost measurement accurately reflects the productive reality of the company ( Figure 4 ).

Therefore:

Where:

CRMC—Cost of Raw Materials Consumed

DLC—Direct Labor Costs

GMO—General Manufacturing Overheads

IWIPC—Initial Work-in-Process Costs

FWIPC—Final Work-in-Process Costs

BIC—Beginning Inventory Cost

EIC—Ending Inventory Cost

All other expenses are classified as period costs, including those related to the commercialization of products, such as Distribution Costs and other charges necessary to facilitate sales. These expenses are technically defined as costs associated with finished products sold (FPSC) and are not directly incorporated into production costs, but instead are considered in the determination of the accounting period’s result, valid information for both companies that operate in series and those that are made to order.

According in line with the framework proposed by Deco & Gomes (2024) , and considering the various stages of a company’s production chain – from the acquisition of raw materials to the commercialization of the final product – the determination of Full Cost involves the following sequential stages:

1st Stage – Allocation of Indirect Costs: application of the homogeneous sections method to allocate indirect costs to the appropriate cost centers.

2nd Stage – Determination of the Production Cost (CP): this consists of calculating the total direct and indirect costs incurred in manufacturing the products.

3rd Stage – Determination of the Finished Production Cost for the Period (FPC): this stage applies specifically to companies operating under continuous or mass production regimes, and it takes into account both beginning and ending work-in-process inventories.

4th Stage – Determination of the Finished and Sold Products Cost (FSPC): at this point, the calculation focuses on the cost of products actually sold during the accounting period.

5th Stage – Determination of Distribution Costs (DC): this includes all costs related to logistics, transportation, and other expenses associated with placing the product on the market.

6th Stage – Determination of the Full or Total Cost (FC): this step sums all production and distribution costs, as well as other relevant business-related expenses.

7th Stage – Determination of the Analytical Result (AR): this final step calculates the company’s economic result for the period, based on the difference between revenues and all costs incurred.

At this point, the research data from Alfaiataria Uenda Uiza and the results achieved as a result of the application of full costing are presented, as well as the discussion of the respective results.

Alfaiataria Uenda Uiza is an industrial enterprise specializing in the manufacture of three main products: shirts, trousers, and blouses. The company uses three primary raw materials: fabric, buttons, and thread.

Its workforce consists of 30 employees, including:

During the period analyzed, the company made the following raw material purchases:

Note: raw materials will be directly affected in production according to the products produced, observing the guidance in “( Figure 1 )”.

Subsidiary Material (interlining): 8,000 meters at 6 Kz

Production Volume during the period:

Selling Prices: Shirts: 30 Kz/unit; Trousers: 60 Kz/unit and Blouses: 80 Kz/unit

Costing Method Adopted: Weighted Average Cost (CUMP – Custo Médio Ponderado)

Allocation Basis for Indirect Costs:

Indirect expenses were allocated according to a cost center map, according “( Figure 2 )”.

The allocation of materials was defined according to the following criteria:

Direct labor costs (MOD) were apportioned according to the proportional consumption of buttons across the different product categories.

The primary objectives of this cost analysis are:

Note: The exchange rate between the currency kwanza and dollar: 1usd is equal to 1.000 kz.

1st Stage: Allocation of Indirect Costs Using the Homogeneous Sections Method

Initially, the values of indirect costs and the number of work units for the main cost centers are calculated, considering the nature of work associated with each center.

Direct Labor Cost

According to the distribution keys collected in the field “( Table 1 )”, indirect labor corresponds to the salary of administrative workers including the salary of sales staff, “as can be seen in Table 2 ”, corresponding to 485,000.00. It is an indirect cost subject to subsequent distribution in the indirect costs distribution map according to the distribution keys contained in each center that makes up the company.

$DeputyDirectorofProdutionSalary=195,000.00kz$

$\begin{array}{c}Totalsalariesofworkers=\left(25Tailors\right)*\left(200kz/hour\right)\\ *\left(8hours/day\right)*\left(22days/month\right)\\ =880,000.00kz\end{array}$

Thus,

$TotalDirectLaborCost\left(DLC\right)=195,000.00+880,000.00=1,075,000.00kz$

Calculation of the Number of Work Units (N˚ WU) for the Main Cost Centers

The direct labor corresponds to the salary of specialists or workers. According to the collected data, out of 25 tailors, the company pays a monthly salary of 1,075,000.00 to the tailors, taking into account the product of the number of tailors, the cost per hour worked, the number of hours worked per day, and the number of days worked per month, more Director of prodution salary 195.000 kz.

Raw Materials: Fabric, Buttons, and Thread (Weighted Average Cost Method—WAC).

It is necessary to know the quantities of raw materials consumed in the production of 100,000 shirts, 50,000 pants, and 120,000 blouses. Therefore, in the “( Tables 3-5 )” one can see the quantities of raw materials consumed in each. It was consumed 13,000 meters of fabric “( Table 3 )”, 30,000 boxes of buttons “( Table 4 )”, and 19,000 rolls “( Table 5 )” in the production of 370,000 units.

Calculation of Work Units (WU)

- Procurement Center

The Number of Work Units for the Procurement Center – is the sum of all materials handled:

$\begin{array}{c}NºWU\left(ProcurementCenter\right)=13,000Mets+30,000Cx+19,000Rl\\ =62,000Mets\end{array}$

- Manufacturing Center

The number of work units for the Manufacturing Center corresponds to the total of hours dedicated by the tailors to transform fabrics, buttons and threads into shirts, trousers and blouses. Thus, it is calculated by multiplying the number of tailors by the number of working hours per day and the number of working days per month.

$\begin{array}{c}NºWU\left(ManufacturingCenter\right)=\left(25Tailors\right)*\left(8hours/day\right)*\left(22days/month\right)\\ =4,400hours\end{array}$

- Distribution Center (10 )

The number of work units for the Distribution Center is determined by dividing the total sales value by the unit value defined for the work nature (10 kz per sale). Therefore, it requires the calculation of the total sales value.

The tailoring reached a turnover valued at 15,600,000 kz from the sale of 100,000.00 shirts, 50,000.00 pants, and 120,000.00 blouses “as can be seen in Table 6 ”, taking into account the selling price of each product, mostly: 30 kz; 60 kz and 80 kz.

$NºWU\left(Distribution\right)=15,600,000/25=624,000kz$

$SubsidiaryMaterialCost=8,000Metsx6kz=48,000.00kz$

After determining the indirect costs associated with the tailoring operation—including indirect labor (ILC) and other overhead expenses—and calculating the work unit bases for the main production centers, the first and second allocations are carried out using the defined allocation keys for the tailoring workshop “as shown Table 1 ” regarding the distribution keys.

In the second allocation, the value of the auxiliary centers to be redistributed is derived from the total obtained in the first allocation, plus the percentage received from reciprocal services rendered by other auxiliary centers. This mutual service provision between the two auxiliary centers results in a system of simultaneous equations, characteristic of the reciprocal method of cost allocation, according the distribution keys “as shown Table 1 ”.

$\{\begin{array}{c}Adm=48,500+30\%ManAdm=48,500+0.3Man\\ \leftrightarrow \\ Main=97,000+20\%AdmMain=97,000+0.2Adm\end{array}$

Inserting the second equation into the first:

$Adm=48,500+0.3*\left(97,000+0.2Adm\right)$

$Adm=48,500+29,100+0.06Adm$

$Adm–0.06Adm=77,600$

$0.94Adm=77,600$

$Adm=\frac{77,600}{0.94}Adm=82,553.191kz$

Inserting the value of Adm into the second equation, ...

$Main=97,000+0.2*\left(82553.191\right)$

$Main=97,000+16510.638$

$Main=113510.638kz$

According to what can be observed in “( Table 7 ),” the allocation of indirect costs was carried out based on the data collected in “( Table 1 ).” Thus, we have the total indirect costs of each main center, since the costs of the auxiliary centers are transferred to the main centers, applying the algebraic method in forming the system of equations to calculate the value of each received auxiliary center, considering the reciprocal keys between the centers.

Therefore, the costs of the Supply Center 99,063.829 kz; the Factory 249,223.552 kz and the Distribution center 184,712.7658 kz will be transferred to the production cost map for their allocation to the cost of the products produced (shirts, pants, and blouses), based on the unit costs of each main center: Supply 1.597 kz, 56.641 kz and Distribution 0.296 kz, respectively ( Table 7 ). As can be seen below, the auxiliary calculations are in the 2nd stage.

Step 2: Determination of Production Cost (PC = Direct Production Costs + Indirect Production Costs)

Direct Production Costs (DPC)

The allocation of direct production costs, based on the number of units produced, is calculated using the following formula:

$\frac{\left(CostorQuantitytobeAllocated\right)*\left(UnitsProducedoftheProduct\right)}{TotalUnitsProduced}$

Fabric (allocated according to units produced)

Quantity:

$Shirts=\frac{\left(13,000\right)*100,000}{270,000}=4,814.815units$

$Trousers=\frac{\left(13,000\right)*50,000}{270,000}=2,407.407units$

$Blouses=\frac{\left(13,000\right)*120,000}{270,000}=5,777.778units$

Value:

$Shirts=\frac{\left(230,000\right)*100,000}{270,000}=85,185.19Kz$

$Trousers=\frac{\left(230,000\right)*50,000}{270,000}=42,592.59Kz$

$Blouses=\frac{\left(230,000\right)*120,000}{270,000}=102,222.22Kz$

Buttons (¼ for shirts, 2/4 for trousers, ¼ for blouses)

Quantity:

$Shirts=\left(30,000\right)*\frac{1}{4}=7500units$

$Trousers=\left(30,000\right)*\frac{2}{4}=15,000units$

$Blouses=\left(30,000\right)*\frac{1}{4}=7,500units$

Value:

$Shirts=\left(180,000\right)*\frac{1}{4}=45,000Kz$

$Trousers=\left(180,000\right)*\frac{2}{4}=90,000Kz$

$Blouses=\left(180,000\right)*\frac{1}{4}=45,000Kz$

Thread (allocated according to units produced)

Quantity:

$Shirts=\left(19,000\right)*\frac{100,000}{270,000}=7,037.04units$

$Trousers=\left(19,000\right)*\frac{50,000}{270,000}=3,518.52units$

$Blouses=\left(19,000\right)*\frac{120,000}{270,000}=8,444.44units$

Value:

$Shirts=\left(85,000\right)*\frac{100,000}{270,000}=31,481.48Kz$

$Trousers=\left(85,000\right)*\frac{50,000}{270,000}=15,740.74Kz$

$Blouses=\left(85,000\right)*\frac{120,000}{270,000}=37,777.78Kz$

Direct Labor Cost (DLC) (allocated based on button consumption)

Quantity (in hours):

$Shirts=\left(4,400\right)*\frac{1}{4}=1100hours$

$Trousers=\left(4,400\right)*\frac{2}{4}=2,200hours$

$Blouses=\left(4,400\right)*\frac{1}{4}=1100hours$

Value:

$Shirts=\left(1,075,000\right)*\frac{1}{4}=268,750Kz$

$Trousers=\left(1,075,000\right)*\frac{2}{4}=537,500Kz$

$Blouses=\left(1,075,000\right)*\frac{1}{4}=268,750Kz$

The Unit Work Units (UO) for each product correspond to the total quantity of raw materials, direct labor hours, or machine hours consumed by that product. The calculation proceeds as follows:

For the Procurement Center

Shirts

$\begin{array}{l}WorkUnit\left(WU\right)=4,814.815\left(fabric\right)+7500\left(buttons\right)\\ +7,037.037\left(thread\right)=19,351.852units\end{array}$

Trousers

$\begin{array}{c}\left(WU\right)=2,407.407\left(fabric\right)+15,000\left(buttons\right)+3,518.519\left(thread\right)\\ =20,925.926units\end{array}$

Blouses

$\begin{array}{c}\left(WU\right)=5,777.777\left(fabric\right)+7500\left(buttons\right)+8,444.444\left(thread\right)\\ =21,722.222units\end{array}$

For the Manufacturing Center

$Shirts=1100hours$

$Trousers=2200hours$

$Blouses=1100hours$

Indirect Production Costs (IPC)

The allocation of indirect production costs is calculated as:

$\left(UnitCostperWorkUnitintheCenter\right)*\left(NumberofWorkUnitsfortheProduct\right)$

Procurement Center

$Shirts=\left(1.597\right)*19,351.852=30,904.91Kz$

$Trousers=\left(1.597\right)*20,925.926=33,418.70Kz$

$Blouses=\left(1.597\right)*21,722.222=34,690.39Kz$

Manufacturing Center

$Shirts=\left(56.641\right)*1100=62,305.10Kz$

$Trousers=\left(56.641\right)*2,200=124,610.20Kz$

$Blouses=\left(56.641\right)*1,100=62,305.10Kz$

As tailoring operates on a made-to-order basis, “( Table 8 )” highlights the total production cost of 100,000 shirts assessed: at the supply center at 523,626.573 kz, at 843,862.2358 kz for the production of 50,000 trousers, and a cost of 550,745.488 kz for the production of 120,000 blouses, based on the allocation of indirect costs from the indirect cost allocation table and the assignment of direct costs (raw materials “( Tables 3-5 )” and the cost of direct labor included in the auxiliary calculations.

Distribution Cost

The distribution cost for each product is calculated using the following formula:

$DistributionCost=\left(UnitDistributionCost\right)*\frac{\left(TotalSalesValue\right)}{UnitPrice}$

Calculations:

$Shirts=\left(0.296\right)*\frac{3,000,000.00}{25}=35,520.00Kz$

$Trousers=\left(0.296\right)*\frac{3,000,000.00}{25}=35,520.00Kz$

$Blouses=\left(0.296\right)*\frac{9,600,000.00}{25})=113,664.00Kz$

The formula above illustrates how the distribution cost is determined, which is the quotient between the sales of each product and the nature of the unit of work multiplied by the unit cost of work from the main distribution center ( Table 7 ). Thus, considering that the sales of shirts are valued at 3.000.000 kz, the sales of pants are valued at 3.000.000 kz, and the sales of blouses are valued at 2.600.000 kz, and having the same nature of work 25 kz as well as the same unit cost of work 0.296 kz, the distribution cost for shirts is valued at 35.52 kz, for pants at 35.520 kz, and for blouses at 113.664 kz, respectively.

Table 9 illustrates the total cost incurred by the Tailoring in the production of each product. The total cost of each product is, therefore, the sum of the cost of finished products sold and the distribution cost incurred to sell the same products. Thus, for the product shirts, the total cost is 559,146.573 kz, for pants it is 879,382.2358 kz, and for the production of blouses, it is 664,409.4885 kz, respectively.

As can be seen in the “( Table 10 )”, the Analytical Result is determined by the difference between the sales of each product (shirts, pants, and blouses) and the total cost incurred for the production of each mentioned product.

The determination of the analytical result was based on what was shown in “( Figure 3 ). Therefore, Uenda Uiza Tailoring recorded a profit of 2,440,853.43 Kz from the sale of 100,000 shirts; a profit of 2,120,617.76 Kz from the sale of 50,000 trousers; and a profit of 8,935,590.51 Kz from the sale of 120,000 blouses.

On a per-unit basis, the profits were as follows: Shirts: 24.41 Kz profit per unit sold, Trousers: 42.41 Kz profit per unit sold, and Blouses: 74.46 Kz profit per unit sold

At this point, the data from the Simba Bakery research and the results achieved based on the application of full costing are presented, as well as the expected discussion of the results.

In serial production, Simba Bakery produces two types of bread: regular bread and sliced bread. The production process relies on three main raw materials: flour, yeast, and improver.

The company employs 30 workers, distributed as follows: 1 General Director earning 220,000 Kz; 1 Deputy Director of Administration and Finance earning 130,000 Kz; 1 Deputy Production Director earning 160,000 Kz; 1 Secretary earning 90,000 Kz; 1 Cleaning Assistant earning 50,000 Kz; The remaining staff are bakers, each earning 400 Kz/hour, working 7 hours per day, 22 days per month.

In April 2022, the company recorded the following accounting information:

Opening Balances

Raw Materials Inventory

Flour – 100,000 kg at 22 Kz/kg

Yeast – 20,000 kg at 20 Kz/kg

Improver – 15,000 kg at 14 Kz/kg

Finished Goods Inventory

Regular Bread – 60,000 units at a unit cost of 30 Kz

Sliced Bread – 20,000 units at a unit cost of 20 Kz

Opening Work-in-Process Inventory

Regular Bread – 2000 units at 50% completion, with an estimated production cost of 60,000.00 Kz

Sliced Bread – 1500 units at 70% completion, with an estimated production cost of 42,000.00 Kz

Raw Material Purchases

Flour – 100,000 kg at 25 Kz/kg

Yeast – 30,000 kg at 15 Kz/kg

Improver – 10,000 kg at 10 Kz/kg

Yeast – 20,000 kg at 8 Kz/kg

Improver – 15,000 kg at 11 Kz/kg

Flour – 3,000 kg at 15 Kz/kg

Note: raw materials will be directly affected in production according to the products produced, observing the guidance in “( Figure 1 )”.

Production Output (April 2022)

Regular Bread – 100,000 units

Sliced Bread – 50,000 units

Selling Prices:

Regular Bread – 40 Kz per unit

Sliced Bread – 85 Kz per unit

Closing Inventories

Raw Materials Inventory

Flour – 20,000 kg

Yeast – 5000 kg

Improver – 2000 kg

Finished Goods Inventory

Regular Bread – 20,000 units

Sliced Bread – 10,000 units

Work-in-Process Inventory

Regular Bread – 5,000 units at 80% completion

Sliced Bread – 1,000 units at 60% completion

The allocation of indirect costs was carried out according to the breakdown shown in the following “( Table 11 )”, according “( Figure 2 )”.

The direct costs are allocated as follows:

In addition to personnel expenses, the company also incurs other indirect costs amounting to 760,000 Kz.

Additional Information: The company applies the FIFO valuation method (First In, First Out).

Objectives:

Note: The exchange rate between the currency kwanza and dollar: 1 usd is equal to 1000 kz.

Step 1: Allocation of Indirect Costs Using the Homogeneous Sections Method

First, the values of indirect costs and the number of work units for the main cost centers are calculated, based on the nature of work specific to each center.

Direct Labor Cost (DC)

The salary of administrative workers looking at the “( Table 12 )” is assessed at 490,000 kz, what is the sum of all salaries, corresponding to workers who do not come into direct contact with the production of Padaria Simba. This includes the General Director, the Deputy Administrative Director, secretary, and cleaning assistant.

$DeputyProductionDirecto{r}^{\prime }ssalary=160,000.00Kz$

$\begin{array}{c}Totalsalaryofoperationalworkers=\left(25workers\right)*\left(400\frac{Kz}{hour}\right)*\left(7\frac{hours}{day}\right)*\left(22\frac{days}{month}\right)\\ =1,540,000.00Kz\end{array}$

$\begin{array}{c}TotalDirectLaborCost\left(DLC\right)=160,000.00+1,540,000.00\\ =1,700,000.00Kz\end{array}$

As can be seen in the auxiliary calculations, the cost of direct labor corresponding to the salaries of specialists or bakers has been determined. Thus, the cost of direct labor including the salary of the Deputy Production Director is 1,540,000 kz. It should be noted that, for the bakers, it is the product of the number of bakers who worked during that period, the number of hours worked per day, the number of days worked per month, and the cost per hour worked.Calculation of the Number of Work Unit (Nº WU) for the Main Centers

- Procurement (Kg of Row Material Consumed)

Observing the “( Tables 13-15 )” report the quantities of raw materials used in the production of 140,000 regular loaves and 60,000 sliced loaves, for which 183,000 kg of wheat flour “( Table 13 )”, 65,000 grams of yeast “( Table 14 )”, and 38,000 grams of improver “( Table 15 )” were consumed, respectively.

Procurement Center

The number of work units for the Procurement Center corresponds to the total kilograms of raw materials consumed:

$UO\left(Procurement\right)=183,000kg\left(flour\right)+65,000kg\left(yeast\right)+38,000kg\left(improver\right)=286,000kg$

Manufacturing Center (Direct Labor Hours)

The number of work units for the Manufacturing Center reflects the total hours dedicated by the bakers to transforming flour, yeast, and improver into regular and sliced bread. It is calculated as follows:

$\begin{array}{c}UO\left(Manufacturing\right)=\left(25bakers\right)*\left(7\frac{hours}{day}\right)*\left(22working\frac{days}{month}\right)\\ =3,850hours\end{array}$

Distribution Center (20 Kz per sale)

The number of work units for the Distribution Center is calculated by dividing the total sales revenue by the unit cost associated with the distribution activity (20 Kz per sale), “as shown Table 11 ”.

Therefore, to determine the number of distribution work units, it is necessary to first calculate the total sales value.

The sales for the period under review of Padaria Simba, considering the sales of Normal Bread which is 5,600,000 kz and Sandwich Bread which is 5,100,000 kz, amounting to a total of 10,700,000 kz ( Table 16 ), are the total sales of this Bakery for the period.

$NºWU\left(Distribution\right)=\frac{10,700,000}{20}=535,000$

After determining the indirect costs associated with the Procurement Center and Sliced Bread production, including Indirect Labor Costs (ILC) and other indirect overheads, and after calculating the nature of work units for the main cost centers, the first and second allocations are performed using the allocation keys provided in the exercise, “as shown Table 11 ” regarding the distribution keys.

In the second allocation, the values of the auxiliary centers to be redistributed result from the total amount obtained in the first allocation, plus the percentage received from reciprocal services rendered by other auxiliary centers. This interdependency gives rise to a system of simultaneous equations, due to the mutual service relationship between the two auxiliary cost centers.

$\{\begin{array}{c}Adm.=576,000+5\%ManAdm.=576,000+0.05Man\\ \leftrightarrow \\ Main.=174,000+10\%AdmMain.=174,000+0.1Adm\end{array}$

Inserting the second equation into the first:

$Adm=576,000+0,05*\left(174,000+0.1Adm\right)$

$Adm=576,000+8,700+0.005Adm$

$Adm–0.005Adm=584,700$

$0.995Adm=584,700$

$Adm=\frac{584,700}{0.995}Adm=587,638.191$

Inserting the value of Adm in to the second equation:

$Man=174,000+0.1*\left(587,638.191\right)$

$Man=174,000+58,763.819$

$Man=232,763.819$

All indirect costs incurred during the production process of Simba Bakery are mentioned in this “( Table 17 )” taking into account the auxiliary and main centers, as well as the keys for distributing these costs to the centers as being the data collected at Simba Bakery. As the totals of the auxiliary centers were transferred to the main centers through the application of the algebraic method, it can be noted in “( Table 17 )” that, of the indirect costs, the main center Supply is valued at 335,633.17, Factory 599,562.81 and Distribution 314,804.02 and, with unit work costs evaluated at 1.174 kz, 155.731 and 0.588, respectively. These costs will be imputed to the products in the production cost map.

Step 2: Determination of Production Cost (PC = DPC + IPC)

(PC = Direct Production Costs + Indirect Production Costs)

Direct Production Costs (DPC)

The allocation of direct costs based on units produced is given by the following formula:

$\left(CostorQuantitytobeAllocated\right)*\frac{UnitsProducedoftheProduct}{TotalUnitsProduced}$

Flour (Allocated Based on Units Produced)

Quantity:

$RegularBread=\left(183,000\right)*\frac{100,000}{150,000}=122,000kg$

$SlicedBread=\left(183,000\right)\frac{50,000}{150,000}=61,000kg$

Value:

$RegularBread=\left(4,275,000\right)*\frac{100,000}{150,000}=2,850,000Kz$

$SlicedBread=\left(4,275,000\right)*\frac{50,000}{150,000}=1,425,000Kz$

Yeast (Allocated Based on Units Produced)

Quantity:

$RegularBread=\left(65,000\right)*\frac{100,000}{150,000}=43,333.33kg$

$SlicedBread=\left(65,000\right)*\frac{50,000}{150,000}=21,666.67kg$

Value:

$RegularBread=\left(970,000\right)*\frac{100,000}{150,000}=646,666.67Kz$

$SlicedBread=\left(970,000\right)*\frac{50,000}{150,000}=323,333.33Kz$

Improver (15% allocated to Procurement Center and 85% to Sliced Bread)

Quantity:

$RegularBread=38,000*15\%=5,700kg$

$SlicedBread=38,000*85\%=32,300kg$

Value:

$RegularBread=453,000*15\%=67,950.00Kz$

$SlicedBread=453,000*85\%=385,050.00Kz$

Direct Labor Cost (DLC—Allocated Based on Units Produced)

Quantity (Hours):

$ProcurementCenter=\left(3,850\right)*\frac{100,000}{150,000}=2,566.67hours$

$SlicedBread=\left(3,850\right)*\frac{50,000}{150,000}=1,283.33hours$

Value:

$ProcurementCenter=\left(1,700,000\right)*\frac{100,000}{150,000}=1,133,333.33Kz$

$SlicedBread=\left(1,700,000\right)*\frac{50,000}{150,000}=566,666.67Kz$

Indirect Production Costs (IPC)

The allocation of indirect production costs is calculated using the formula:

$\left(UnitCostofWorkintheCostCenter\right)*\left(NumberofWorkUnitsfortheProduct\right)$

Note: The Number of Work Units (N˚ UO) corresponds to the total amount of raw materials, direct labor hours, or machine hours consumed by each product.

Procurement Center

Work Units (UO):

$ProcurementCenter=122,000+43,333.33+5,700=171,033.33units$

$SlicedBread=61,000+21,666.67+32,300=114,966.67units$

Unit Cost of Work: 1.174 Kz/unit

$ProcurementCenter=1.174\times 171,033.33=200,714.89Kz$

$SlicedBread=1.174\times 114,966.67=134,918.27Kz$

Manufacturing Center

Work Units (HMOD hours):

$ProcurementCenter=2,566.67hours$

$SlicedBread=1,283.33hours$

Unit Cost of Work: 155.731 Kz/hour

$ProcurementCenter=155.731*2,566.67=399,708.54Kz$

$SlicedBread=155.731*1,283.33=199,854.27Kz$

“ Table 18 ” therefore highlights the production cost of the started and finished parts. As can be seen, 100,000 normal loaves of bread were produced at a cost of 5,298,373.435 and 50,000 sliced loaves valued at 3,034,822.545 kz. This is the sum of the direct costs (raw materials and direct labour) assumed and the indirect costs of the main centres (supply and factory) coming from the indirect costs distribution map. It should be noted that the main distribution centre is treated separately as it is an activity carried out after production. Next, the cost of initial production in progress is added to the production cost.

Step 3: Determination of the Cost of Finished Production (CFP)

Considering that the company under analysis operates under a phase-based or mass production regime, the Cost of Finished Production (CFP) is determined using the indirect costing method, according to the following formula:

$CFP=OWIP+PC-CWIP$

where:

For companies that produce in series, as is the case at Padaria Simba, they work in shifts and each shift finds and leaves some production in progress which, depending on the moment, each shift will find a production in progress and leave a production which will be called final production in progress. To do this, there is a complete need to calculate the effective equivalent units 153,150 “( Table 19 )” of the period, in this case, normal bread gave 103,000 and sliced bread 50,150, in order to be able to determine the unit cost of the final production in progress, through the unit cost arising from the quotient between the total cost and the total equivalent units which is used in determining the cost of the final production in progress.

Valuation of Closing Work-in-Process (CWIP)

According to the FIFO method, the Closing Work-in-Process (CWIP) is valued at the equivalent unit cost (EUC) of the current period’s Equivalent Units of Production (EUP). That is:

$CWIP=EUPcomponentcost*Percentageofcompletion\left(perelement\right)$

This ensures that only the costs of the current production period are considered when valuing the CWIP, excluding any costs carried over from the opening inventory.

It can now be seen in “( Table 20 )” the cost of the final ongoing production which, in relation to the products, is the product between the unit cost of the effective production (CUPE) and the equivalent quantities or units of the final ongoing production. For normal bread the cost is 205,762.08 and for sliced bread it is 36,308.94, meaning that the total cost of the final ongoing production is 242,071.02 kz. This last cost is removed from the cost of the finished production of the period.

In March 2022, Simba Bakery produced:

Now, if you can observe the Cost of Finished Production for the Period of Simba Bakery in the month of March of the year 2022, it produced 100,000 units of Normal Bread having supported a cost evaluated at 5,122,611.360 kz, and 50,000 units of Sliced Bread having supported a total cost of 3,011,113.601 kz, as being the sum of the cost of initial production in progress (CPCI) plus the cost of effective production (CPE) minus the cost of final production in progress (CPCF). In the production of a unit of Normal Bread, the company incurs a cost of 51.226 kz and a cost of 60.222 in the production of a unit of Sliced Bread “( Table 21 )”.

Step 4: Determination of Full Cost ( $FC=CostofGoodsSold+DistributionCost$)

$COGS=OIFG+FP-CIFG$

where:

Inventory of Goods

Since there was initial production (found) and final ongoing production (left) in addition to started and finished production, there is every need to inventory the stock of finished products in the warehouse “( Table 22 and Table 23 )”. These tables illustrate the finished units sold in the period for each product produced and their corresponding cost. Thus, for normal bread 140,000 were sold at a cost of 5,898,089.09 kz “( Table 22 )” and for sliced bread 60,000 units were sold at a cost of 2,808,890.88 “( Table 23 kz)”.

Distribution Costs

The distribution costs are allocated proportionally based on total sales revenue, using a standardized rate per unit sold. The formula applied is:

$DistributionCost=\left(RateperSaleUnit\right)*\frac{TotalSalesRevenue}{StandardDivider}$

According to the formula above, the distribution cost is given by the quotient between the sales of each product and the unit work nature multiplied by the cost of the unit work of the main distribution center ( Table 11 ). Thus, since the sales of regular bread are valued at 5.600.000 kz and of sliced bread are valued at 5.100.000 kz, both having the same work nature 20 kz as well as the same unit work cost 0,588 kz, the distribution cost for regular bread is valued at 164.757,24 kz and for sliced bread at 150.046,78 kz, respectively.

“Can be seen in Table 24 ,” the total or complete cost incurred by Padaria Simba in the production of each product. Therefore, the sum of the cost of finished products sold and the distribution cost assumed to sell the same products. Thus, for the product Normal Bread, the total assumed cost is 6,062,846.33 kz, and in the production of Sliced Bread, it assumed a total cost of 2,958,937.66 kz, respectively.

The Analytical Result is the difference between the sales of each product (shirts, pants, and blouses) and the total cost incurred for the production of each mentioned product, according to “( Table 25 ).” It was based on what was shown in “( Figure 4 )”. In April 2022, Simba Bakery recorded a net profit of 2,141,062.34 Kz from the sale of 60,000 units of Sliced Bread, and a net loss of 462,846.33 Kz from the sale of 140,000 units of Regular Bread (Procurement Center).

This corresponds to:

These results reflect significant variations in cost structure and profitability per product, indicating the need for strategic pricing review and potential cost optimization, particularly for the Regular Bread line.