Even on their website videos, Hershey breaks the production of the candy bars into seven separate functions, each with the end goal of developing the finest chocolate bars possible but with unique and separate processes. Just as Hershey has multiple processes, they will also have multiple product costs. A few traceable product costs that come to mind are associated with the seven website videos. The first film shows the production of the raw cocoa beans. The company will determine the costs associated with the purchase of raw materials such as the beans, sugar, and milk. This cost would be variable costs, as the production is increased, the volume of raw materials would also increase. The second stage of roasting and breaking the beans may also have variable inventory costs, and possibly a combination fuel costs to heat the roasters. Hershey will always have the fuel costs, but the amounts will vary depending on the amount of beans being roasted.
The third stage of milling and pressing the beans will also have a combination of fuel cost to run the machinery. The process of blending and mixing of the chocolate looks to have a lot of direct labor and once again fuel costs to run mixers, heaters and dryers in addition to the various employees creating direct labor costs. The refining process runs many heavy granite rollers and mixers to develop the chocolate into a smooth texture and will also generate additional fuel and power costs. Finally, the wrapping and packaging stages will have variable costs for the materials to wrap and package the candy in preparation for transportation to the consumer.
In each of the categories, fuels and power costs are utilized in the preparation of the chocolate bars. This is one cost that one that could be allocated to each department. In addition, the facility costs, square footage and non direct labor may be allocated to the various departments. I feel Hershey should debit factory overhead for the actual costs incurred and credit Factory Overhead as these costs are allocated to Work in Process, which eventually gets transferred to expense as Cost of Goods Sold as shown via the preceding entries.