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...Cost is the most important element in any business. This cost is the investment to be able to acquire profit. In a manufacturing business cost is a combination of labor, raw materials and overhead cost incurred in the production that also comprises of direct and indirect cost. Direct cost includes costs that are directly attributable for the creation of the product like materials and labor while indirect costs are those incremental costs that are hardly to be traced in a product like overhead cost. This cost can simply found in the cost of goods sold of a merchandising business.

The goal of this study is to control cost of production whereas production is the process of making a product through inputs of Pamela's Bakeshop. Cost estimation is a good starting point to control cost. If cost can be controlled anything positive follows specific changes like reducing cost. Since manufacturing nowadays issues have grown more complex. The bottom line is the objective of every merchandising business is likely to be profitable revenue growth. This should be the priority. If the company is not profitable, the company needs to focus on the controlling costs.

A good cost control system can case and facilitate the claim process. The primary benefit provided from the cost control system is the ability to quickly and accurately prove the any inefficiency that could rise. This study attempted to find methods that could help control cost and the researchers have three possible techniques: forecasting, Economic Order Quantity (EOQ) and Variance Analysis. The researchers strongly believe that this method could decrease inefficiency.'

Company Background

In 1992, after the Mt. Pinatubo eruption Ms. Pamela Soliman seek to find a source of income. Since at the age of 18 she already loves to bake she decided to apply her practices by the age of 22. She started by establishing a small canteen business which offers fast food and accepts orders for sweet baked food particularly cakes and cupcakes. At first the business struggles to look for valued customers and even offers the cakes house to house but in no time the business became stable. After sometime this small canteen ventured to just focus into a bakeshop business in which Ms. Pamela love to do considering baking is her passion. She took effort to learn hands-on all she needed to know about the baking industry and laid down her business concept of fresh and bake for customer's satisfaction. This bakeshop is now well known as 'Pamela's Bakeshop'.

In 2006, after fourteen years Ms. Pamela Soliman decided to pursue her other dreams and stay for good in Singapore. Since it is hard to manage a business while in abroad Ms. Pamela leaves her business to her brother Mr. Franklin Soliman. He is now the owner and manager of Pamela's Bakeshop. Ms. Pamela knows that the business is in good hands because she is the one who taught her brother how to bake and became a trusted partner since the establishment of the business.

By the year 2010, Mr. Franklin Soliman and his siblings just decide to form a family business since the business became the center of income for their family. Eventually they could pass the business to future generation. The second branch is in Henson, Angeles City opened in 2013 which her siblings manage it. Same concept goes in the third branch in Pandan, Angeles City that is just been established a year ago known as 'Sweet Passion Bakeshop'. Today Pamela's Bakeshop continues to grow and develop a marketing strategy to compete with the changing environment. It aims to satisfy the higher expectations of the modern customers who know what they want in the product they buy. Remain to improved classic favorites and develop new yet affordable sweets offerings. A good example of success is through hard work. Pamela's Bakeshop keeps serving delicious, always fresh, and baked sweets with love. Indeed, at 24 years of Pamela's Bakeshop it already makes a mark to everyone in the town especially in Mabalacat City.

The objectives of the researchers are as follows:

1. To know in details the existing Production Cost System of Pamela's Bakeshop then identify ways to improve it.

2. To know related cost in making or acquiring goods and services that directly generates revenue and observe right measurement of cost to be allocated on materials used.

3. To insure that every cost incurred in the production would not be wasted.

4. To minimize cost without sacrificing the quality of the product.

5. To increase profitability by controlling cost of production.

The significance of this research is primarily for the benefit of the company. This study seeks to find ways on how to improve ineffective areas in the company's current production cost. Identify related cost that affects revenue and profit targets to enhancing cost estimation to have better pricing and insure that resources used that would not be wasted. Apply new method on controlling cost of production that decreases inefficiency in terms of labor, material and overhead cost to have better manufacturing strategy.

The finding could inform the readers or future researchers about the results, conclusions and the possible solutions to the problems that could be used in that we encountered about controlling cost of production. To the researchers, an extensive investigation of this study could increase the knowledge in these areas and can use it in case of future application.

Review of Related Literature

The word cost is simply described as how we spend in one thing. Everybody incurred cost whether you are self-employed or not, even the Government. In our daily lives, cost for us is our purchases of the things we need, but in a manufacturing business the cost are the cost of labor, cost of materials and overhead cost. As stated by Mott (2008), 'Cost is incurred on the resources consumed by the organization when carrying out its business objective of satisfying customers'.

As stated by Heakens (2006). Cost is the most important term or idea in the business world and always attached in an erroneous concept. To have and develop a better understatement and good working knowledge of interpretation, application, definition and method for managing cost will be very important to you. It will significantly enhance or even excel your ability in the business world. The ideal starting point for an elaborate discussion on the many phases of cash is the home budget.

Furthermore Cabrera (2014) defined cost as the value foregone or sacrifice of resources for the purpose of achieving some economic benefit which will promote the profit-making ability of the firm. It is also a sum of expenditure specifically money to acquire goods and services that assist in performing the operations. Manufacturing costs are all the cost associated with the production of good. They are classified as direct materials, direct labor, and manufacturing overhead.  Costs attached to the product are usually capitalized as inventory asset and expense when goods are sold.

Control also distinct by Cabrera (2014) involves the step taken by management to safeguard that objectives set at the planning stage are attained and guarantee that parts of the organization function in a manner consistent with organization policies. A good budget system provide both planning and controlling unless there are no plans are presented there are no objectives toward which control could be directed.

Lieberman et.al (2013), states that a production is the process of combining inputs to make goods and services. Producing a thing consist of four resources which includes land, labor, capital, entrepreneur and other things like raw materials. The total product is the maximum quantity of output that can be produced from a given combination of inputs. Those inputs are accompanied by costs which either can be fixed cost that remain constant as output change and variable cost which change its cost depending on the output.

Hall, et.al, (2008), has a redesign of cost allocation framework should have the following objective: (1) Increase accountability to the one who receive the services and pay the cost that have to be paid. 2) Have a discussion about what services will be provided for the future and associated cost impact. 3) Establish a good starting point to enable the external performance benchmarking of routine transactional services. (4) Provide reporting governance that is sufficient to satisfy internal management criteria.

According to Woodka (2011), for many providers, reductions in agency staff and minimizing over time are fast track ways to control labor costs because labor is the largest provider of expense that has not been manage as well as it could be. Consider automation to assist your efforts to control labor costs by minimizing overtime and managing staffing more efficient and accurately. Moreover Sakkarin, et,al. (2013) Cost is always considered as a crucial factor in signifying production efficiency. The main cost index was used in the analysis on assembly labor cost due to the least changes possibility in material.

Bragg (2013) defines cost control is a series of steps that a business uses to maintain proper control over its cost. Implementing this level of control can have a profound positive impact on profits over the long term. He also states that direct labor cost is associated with products

Taylor (2006) states that accurate costing is the key to a business success if business underestimates the cost of its project obviously it will soon finds itself out of the business. It is crucial for managers to understand cost and cost categories. Most business depends upon external contractors for their livelihood and not all managers became involve in the costing or bidding process. The main issue here is the business should be informed. Coker (2010) said that controlling cost or staying on a budget is the key in making profits. The goal in making a compost manufacturing plant is to ensure that materials are efficient as possible throughout the manufacturing process. Analyze the cost accurately first to control cost. This begins with calculating machine rates for each piece of equipment used in the manufacturing.

Moreover Hallinan (2006) suggested in starting cost cutting management usually asks, 'How can we make this operation more efficient?' this is a wrong question. The question should be 'What would the business miss if we stopped doing this work all together?' and if the answer is 'Nothing to lose' the business should eliminate the operation which is not producing any profit to the business.

Douglas (2012) Cost cutting can be a good move in strategic decision. Strategic planning is a short and long term mission, vision of the company/ firm. Successfully strategic planning can serve as a direction and realizing long term goals necessities. In research, it is said that budgets and control systems are least in strategically focused.

As stated by Stevenson (2012) Forecasting is a statement about the future value of a variable such as demand. Any predictions from the future are a forecast. The better those predictions, the more informed decision can be done. Long range forecast are needed and important for decisions that will have long term consequence for an organization. Planning is the integral part of a management job. If uncertainties occur in the planning horizon, managers would find it difficult to plan effectively. Forecast will help managers reduce those uncertainties and enable them to have developed and more significant plans. Forecasting is not just used to forecast demand but it also includes predicting profit, revenue, cost, productivity changes, prices and availability of resources. Forecast in business organization as to operation which includes capacity planning, schedules, work assignment and workloads, inventory planning, make or buy decisions and outsourcing. As to products or service design including revision of current features, design of new product and as to human resources includes hiring activities, training and lay off planning.

As defined by Stevenson (2012) Exponential Smoothing is a classy weighted average method that is relatively easy to understand. The equation for a single-exponential smoothing forecast is:

Ft = Ft ' 1 + a (At ' 1 ' Ft ' 1)

As defined by Stevenson (2012) forecast accuracy is significant when deciding among forecast alternatives. The formulas commonly used measuring historical errors as follows:

 Mean Absolute Deviation (MAD)=  ('''(A-F)')/n

 Mean Squarred Error (MSE)=  '''(A-F)'^2/n

 Mean absolute percent error (MAPE)=  ('''(A-F)/A')/n

As defined by Stevenson (2012) Linear Trend Equation is used to develop forecast when trend is present. The formulas for the linear trend are:

 b=(n'ty- 't'y)/'n't-(t)'^2

 a=('y- b't)/n

F = a + bt

As defined by Gitman, et.al (2013) Economic Order Quantity (EOQ) is an inventory management technique that determines an item's optimal order size which is the size that minimizes the total cost of its order cost and carrying cost.

While De Leon, et.al (2014) said that Economic Order Quantity (EOQ) is the purchase order which result in the lowest amount in total inventory cost. In determining the quantity to be ordered, the cost of placing an order and the cost of carrying inventory must be considered. There are factors to be considered in determining ordering cost: First the salaries and wages of employees engaged in purchasing, receiving and inspecting the materials. Secondly, the communication cost associated with ordering, such as telephone. Last to consider is the materials accounting and record keeping. There are also factors to be considered in determining carrying costs: First, Materials storage and handing cost. Second: interest, insurance and property taxes. Third: loss due to theft, deterioration or obsolescence. Lastly, records and supplies associated with the carrying of inventories.

There are two methods for computing EOQ the tabular method where several purchase order quantity alternatives are listed in separate column and the column which has the lowest total amount of inventory cost will be the economic order quantity and formula method which is easy to use and produce an exact figures

The formula for Economic Order Quantity (EOQ):

 EOQ=  2CN/K

Where EOQ is the economic order quantity, C is the cost of placing an order, N is the number of units required annually and K is the carrying cost per unit of inventory.

Forecasting helps the company to assess the possible outcome for the future events. It can provide valuable information to make decision in the future but by this method the company can be ruin. Not all the times the forecasting can be helpful, most of the company assume that the result in the forecasting will be accurate. Forecast will just give us the best possible information not what will happen in the future. The EOQ suggest that buying a larger quantity in fewer order is good. By these, the order cost can be minimizing. And also one of the advantages of the model is, it can provide specific numbers regarding how much inventory to re-order, how many items to be order and inventory to hold. In small business EOQ is helpful because you can lessen the cost by not renting a storage room for the stock of the company (Harbour, 2016).

Study still based from De Leon, et.al (2014) one of the major purposes of using a standard cost system is to aid management in controlling cost of production. Having a standard can enable management to make periodic comparisons of actual with standards or planned results. The difference arises between actual results and standard results are called variances. Variance analysis technique can be used by management to make to measure performance, correct inefficiency and deal with the 'accountability function'.

There are different variances that aid management in controlling cost of production: Direct Material Variance, Direct Labor Variance and Factory Overhead Variance. In Direct Material Variance there are two: Price Variance and Efficiency Variance. In Direct Labor Variance is divided into two: Rate Price variance and Efficiency Variance. In Factory Overhead Variance there are four different kinds of factor analysis.

Guerrero, P. (2010) states that manufacturing cost classified as the direct materials, direct labor, manufacturing overhead and indirect materials. Direct materials are raw materials that have a vital part of the finished products. Direct labors are those employees who work directly in converting the raw materials into finished product. And lastly, manufacturing Overhead includes indirect materials and indirect labor that could not be traced to the specific units of product.

Furthermore to Guerrerro, P. (2015), Labor Rate Variance also called the labor price variance is the difference of actual labor rate per hour from the standard labor per hour. If the result of this two is positive it is favorable and on the other side if the result is negative it is treated as unfavorable. One of the reasons for favorable result is the use of inexperienced or unskilled worker instead of the use skilled and experienced one. The other direct labor variance is the labor efficiency variance also known as labor time variance or labor usage variance. As written in the book of the same author this compares the cost of the actual hours worked to the cost of standard hours allowed. This method measures the efficiency and effectiveness of labor. The causes of an unfavorable efficiency variance may come from lack of training of the workers, defective equipment and last the negligence of taking care of the equipment by the employees.

Fritzgeral (2006) suggested that to be in control a business needs to understand that not all products and markets yield equally in terms of profitability. There are some positive steps can be taken to improving profits and eliminating losses are needed to have high profits. As suggested by, if a problem exists, it must be identified and must prepare series of steps.

According to Brown (2009) products and pricing structures are very important in every business. They must know the exact cost of running the business which involves different trading processes. These involve cost like in producing the item or services, delivering the products to the customer, marketing and selling of the product and carrying out activities to control the business.

Based from Woodward (2009) estimating a unit cost of production helps producers take an objective, look at whether or not an enterprise is profitable. In today's world tight margins objectivity and facts, not sentimentality and guesses, are what keeps ranches in operation.

Specifically, it will attempt to answer the following questions:

What is the existing Production Cost System of Pamela's Bakeshop?

What is the significance of Cost of Production Control in terms of;

2.1. Profitability

2.2. Materiality level

What are the proposed measurements or analytical tools to maximize the company resources;

3.1. Inventories

3.2. Equipment

3.3. Labor

What is the assessment on quality control of Pamela's Bakeshop?

What are the proposed strategies for Pamela's Bakeshop?

Concepts and Theory Mapping

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Theoretical Framework

The main objective of the study is to control the cost of production of Pamela's Bakeshop to increase profitability and eliminate losses. Cost Information may be generated from Management Advisory Services (MAS), Cost Accounting and Other related studies about cost and production. As suggested by Coker (2010) cost should be identified accurately as Direct Labor, Direct Materials and Manufacturing Overhead. There are suggested ways of controlling the cost of production from related studies including: Cost cutting and maximize labor productivity.

There are several techniques that could help controlling the cost the first one is forecasting, which cannot only predict demand but it also includes predicting profit, revenue, cost, productivity changes, prices and availability of resources.  Second is Economic Order Quantity (EOQ) is the purchase order which result in the minimum or lowest amount in total inventory cost in determining the quantity to be ordered, the cost of placing an order and the cost of carrying inventory must be considered. Last suggested method is Variance Analysis that aids management to control cost of production. It compares actual with standard results which correct inefficiency and measure performance.'

Theoretical Framework

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Conceptual Framework

Under the methods of controlling cost of production there are three presented techniques for the study including Forecasting, Economic Order Quantity (EOQ) and Variance Analysis but the researchers decided to use only two of these methods which include Forecasting using time series analysis focus on trend analysis and Variance Analysis focusing more on labor variance. These techniques are chosen to help the business cope up with controlling the cost of production by anticipating, cutting the cost and correct unwanted inefficiency. Other alternatives specifically Economic Order Quantity (EOQ) presented in the theoretical framework is applicable but information derived from this method is limited. This method may help but it just focuses more on inventories that can also be met in forecasting method. The researchers conclude that the results derived from forecasting can be more effective and useful.

Forecasting is important in an organization especially when the line of the business is manufacturing. This can be useful to foresee customer's demands using the past data as basis for the company to enable to anticipate and prevent inability to meet them. Having an effective forecasting can result to a good forecast especially in Pamela's Bakeshop in which products can easily expired, too little and too many productions are both unprofitable. In a production cost is always associated. In this method we could cut this accompanying cost if we could already forecast future demands to be efficient. It is efficient in a way that no inputs would be wasted. And lastly, Variance Analysis compares actual cost accumulated with the standard cost expected. These methods find out if the budgeted cost and the corresponding results are favorable or unfavorable for the company. The researches would like to focus more on labor variance because more related studies suggested that labor cost is most likely to be controlled.'

Conceptual Framework

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Operational Framework for Forecasting

Pamela's Bakeshop is currently experiencing inconsistency in using a Production Cost System. The business excuse itself of lacking time to consistently record or use a controlling cost of production method. Since the business already makes use of forecasting method before, the researchers of the study suggested that the business should bring back the use of this method by using time series analysis focusing on trend analysis. In this model which illustrates the operational framework for forecasting it shows how this technique can be applied to help the business handle the cost of production by controlling volume of their inputs.

In forecasting, the researchers could make use of the business past data as their basis by using the demand from the past data and forecast for the next day, weeks or even months can be known to be able have a standard basis. This method would be useful to foresee customers' demands to enable to anticipate it and prevent inability to meet them. Especially in Pamela's Bakeshop in which manufactured products easily expired too little and too many are both unprofitable. Too little, wouldn't maximize the sales the business could have if it produces more. Too many, wouldn't be profitable either if manufactured product couldn't be sold on time before it expires.

The demand forecast used is in a weekly basis as the owner state that it is the most substantial to use. It is also base on unidentified customers that make normal random orders for cakes and cupcakes. This demand is a sort of projections to the business sales. The researches made a forecast on the weekly basis and the demands used came from the past two months span. This forecast is an estimate that remains unknown until actual demands are already present.'

Operational Framework for Forecasting

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Operational Framework for Variance Analysis

Pamela's Bakeshop follows no rules in implementing Production Cost System. The researchers notice that business is not strict in following standard or budgeted cost especially in direct labor cost. Considering that the direct labor cost is most likely to control the use of Variance Analysis Method focusing in direct labor variance and labor efficiency variance.  In this model which illustrates the operational framework for variance analysis it shows how this technique can be applied to help the business manage to deal with the cost of production by controlling labor productivity.

In Variance Analysis, the method compares the actual cost accumulated with the standard cost expected. This method can help to figured it out if budgeted cost and the corresponding results are favorable or unfavorable for the business. It can be a way to correct unwanted inefficiency. The researches would like to focus more on labor variance because more related studies suggested that labor cost is most likely to be controlled.

To solve for direct labor rate variance, the researchers made used must the historical data for the actual hours worked and standard hours. This method compares by subtracting the standard hours from actual hours worked and the difference could state if its favorable or unfavorable. The labor variance is computed in a monthly basis since the information need is also in a monthly basis. The results of the method cover up inefficiency made by the business.'

Operational Framework for Variance Analysis

Methods

Research Design

The researcher will be using descriptive research design; the researcher's purpose is to describe how each objective of the study will be achieved. Its other purpose is to be sure to provide enough details to allow the reader that can make an informed assessment of the methods being used to obtain results associated with the research problem. The research is considered as a descriptive, since statistics was used to explain or give substance to a theory and non-experimental, since the instrument to be used is a questionnaire. Respondent cited the difficulty in insufficient equipment regarding electricity interruption. Research of any type is a method to gain information through an interview scheduled and observation in acquiring information.

Participants

The information that the researcher used for study were gathered from various individuals or participants. That significant information was come from Mr. Franklin Soliman, the owner of the bakeshop. Due to his role, sufficient insights about the production, company background, and other additional information was given to the researcher to be able to come up with the alternative strategy or solution for the company.

The interview used was the interview schedule. The instrument made it possible to the researcher to acquire additional information to know more about the production operation and also information that answered the statement of the problem of the study.

Source of Data

The primary source of data of the study is based from the interview conducted with Mr. Franklin Soliman, the owner of the bakeshop and the Pamela's Bakeshop Manager. The secondary sources are the files and historical cost given by the owner which includes manufacturing cost and estimations and weekly demands

Research Instrument

The instrument used in the study is a form of an interview. The owner of the bakeshop provided the researchers the information or data needed in the study in order to come up with the new proposed strategy or methods in controlling cost of production of the business. Another instrument that the researcher used is the questionnaire that was given to the manager. Some of the questions asked: (1) Does the company currently use a Production Cost System? (2) Does the company have an existing quality control? (3) Are there current problems you encounter regarding cost of production? (4) are there measurements on how many would you produce to deal with customers' demand? (5)What do you do the products (cakes and cupcake) that wasn't purchased or leftovers?

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References

Books

Bragg, S. (2013) Cost Management Guide Book.

Bragg, S. (2013) Cost accounting fundamentals.

Douglas D. (2012) A more enlightened approach to Cost Control. Financial Executive.

Evan, H., Wall, P. (2008) Cost Allocation. Financial Management page 39-40.

Fitzgera, R. (2006) Part III: Financial Planning and Control. Chapter 10: TotalCosting.

Guerrero, Pedro P.  Cost Accounting: Principles and Procedurals Application (Vol. 1 2010 Edition).

Gulliermo M. De leon and Norma D. De leon. Cost Accounting (2014 Edition).

Jim, T. (2006) Project Scheduling and Cost control. Published by J. Ross Publishing Inc.

Gitman, Lawrence J. Principles of Managerial Finance.

Lieberman, Marc and Ernest, Robert. Principles and Applications of Economics (6th Edition)

Mott, G. (2008) Part 2: Management Accounting Chapter 11: Costing basics (7th Edition)

Oliver, D. (2006) Chapter2. Count the Cost (2nd ed.ed)

Stevenson, W. Operations management: An Asian Perspective

Thesis

Banerjee, B(2014) Strategic Cost Management: Conceptual Under Pinning

Brown, B. (2009) Identifying Your Costs. Published by Rischmond: Crimson Business LTD.

Craig, C. (2010) http://search.proquest.com/docview/75558869Y?accountid=148769. Published by J.G Press Inc.

Dryry (2007) www.economics-sociology.eu/files/10_79_novak_popesko.pdf

Hainan, E. (2006) Reeves Journal 86.2.

Heealcens, G. (2006) .04 ' Cost management in Organization.

Jonsson and Mattson (2009) Publications.lib.chalmers.se/records/fulltext/148449.pdf

Sakkarin, C., Uttapol, S. (2013) International Conference on Operations Research and Statistics, Singapore: Gobal Science and Technology Forum.

Steffan(13) 2008 Part I: Business Planning and Analysis

Synek (2011) www.economics-sociology.eu/files/10_79_norak_popesko.pdf

Parkinson, J. (2011, May) Coting in Process Manufacturing: The Myth and the Reality

Woodka, M. (2011) Long-term Living  60.8(enter-tab)Woodka, M. (2011) A manager's guide to labor cost management

Woodward, C.L (2009)

C. Interview

Interview scheduled from Franklin Soliman, the co-owner of Pamela's Bakeshop

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