Process costing is a term used in cost accounting to define one method of collecting and assigning manufacturing related costs and overhead costs to the units produced (Drury, 2013). This type of costing system serves best in homogenous units a company produces. Therefore, the costing system that suits Jelly Belly Factory is process costing. First, the units the company produces are all homogenous. That is, they are all candy and of the same sizes with differing flavors and color. Additionally, the units produced in the kitchen department do not differ from each other. For example, the stock prepared while making the pina colada is similar to the one prepared when making a margarita or black berry. Therefore, process costing will best suit Jelly Belly Factory.
The best driver that Jelly Belly Factory should use is the machine based driver. Machine based driver refers to assigning overhead costs based on machine hours instead of labor hours (Drury, 2013). This is because the company has different departments such as quality control and production, but to name a few. As such, the variance would suit the efforts in allocating costs for different service needs. As a result, the company will end up saving costs like manufacturing and labor costs. Thus, the best tool to use is the machine based driver.
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If Jelly Belly Factory under-allocates overhead cost by 6% they will expense on the product. The total costs of the product will be affected in the sense that the cost might not meet the cost of a product constitutes. If the constitutes cost of the product is affected then the inaccuracies will lead to incorrect decisions by the management especially pricing decisions. Thus, the company will expense rather than capitalize on the 6% adjustment.
References
Drury, C.M. (2013). Management and Cost Accounting . Springer
