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    Manufacturing Costing Page 1

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    Bazi
    Manufacturing costing methods help determine production costs and performance. There are three main methods: process costing calculates average unit costs over a period for mass production; job-order costing tracks individual unit costs for customized production; and activity-based costing groups costs by manufacturing task rather than generic categories like materials and labor.

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    Manufacturing Costing Page 1

    Uploaded by

    Bazi
    38 views1 page
    Manufacturing costing methods help determine production costs and performance. There are three main methods: process costing calculates average unit costs over a period for mass production; job-order costing tracks individual unit costs for customized production; and activity-based costing groups costs by manufacturing task rather than generic categories like materials and labor.

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    Manufacturing Costing Page 1

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    Manufacturing costing methods help determine production costs and performance. There are three main methods: process costing calculates average unit costs over a period for mass production; job-order costing tracks individual unit costs for customized production; and activity-based costing groups costs by manufacturing task rather than generic categories like materials and labor.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    38 views1 page

    Manufacturing Costing Page 1

    Uploaded by

    Bazi
    Manufacturing costing methods help determine production costs and performance. There are three main methods: process costing calculates average unit costs over a period for mass production; job-order costing tracks individual unit costs for customized production; and activity-based costing groups costs by manufacturing task rather than generic categories like materials and labor.

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    COSTING METHODS

    (MANUFACTURING)
    Manufacturing costing methods are accounting techniques that are used to help understand the
    value of inputs and outputs in a production process. By tracking and categorizing this
    information according to a rigorous accounting system, corporate management can determine
    with a high degree of accuracy the cost per unit of production and other key performance
    indicators. Management needs this information in order to make informed decisions about
    production levels, pricing, competitive strategy, future investment, and a host of other concerns.
    Such information is primarily necessary for internal use, or managerial accounting.

    OVERVIEW OF CURRENT METHODS


    PROCESS AND JOB-ORDER COSTING.

    There are two conventional costing approaches used in manufacturing. The first, and more
    common, is process costing. Used in most mass-production settings, a process cost system
    analyzes the net cost of a manufacturing process, say filling bottles with soda, over a specified
    period of time. The unit cost for filling bottles is simply the net costs incurred while filling all the
    bottles during the period divided by the number of bottles filled. Since most manufacturing
    processes involve more than one step, a similar calculation is made for each step to arrive at a
    unit cost average for the entire production system. By contrast, the second major costing method,
    job-order costing, is concerned with tracking all the costs on an individual product basis. This is
    useful in settings where each unit of production is customized or where there are very few units
    produced, such as in building pianos, ships, or airplanes. Under job order costing, the exact costs
    incurred in the production of a particular unit are recorded and are not necessarily averaged with
    those of any other unit, since every unit may be different. Job-order costing is also widely used
    outside manufacturing. A single manufacturer may use both process and job-order costing for
    different parts of its operations.

    ACTIVITY-BASED COSTING.

    Activity-based costing(ABC) is a secondary and somewhat complementary (or better,


    supplementary) method to the two traditional costing techniques. Whereas traditional methods
    might classify costs in generic categories like direct materials, labor, and other overhead, ABC
    clusters all the costs associated with a single manufacturing task, regardless of whether they fall
    under the headings of labor or materials or something else. So in the bottling example activity-
    based costs might include operating the dispensing machines, performing quality checks, moving
    pallets of bottles, and so forth. Each of these activities may involve human labor, equipment
    costs, energy and expendable resources, and materials, but for analytic purposes the costs are all
    lumped together under a single activity concept. The advantage of this approach is that
    management can then observe which tasks cost the most versus which add the most value; this
    analysis may indicate that a disproportionate amount of money is being spent on low-value
    activities, signaling a need for process changes or for outsourcing to a vendor that can perform

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