Cost Management


Cost Management

Different costing methods for each business system


ERP systems such as Microsoft Dynamics and Sage Accpac, which are often introduced in Indonesia, adopt the continuous record method to automatically generate accounting journal when the production and input results are recorded.


Cost Management

Relationship between manufacturing cost and SGA (Selling and Generally Administrative Expenses)


Manufacturing cost is the cost of the product entered into the warehouse in the current month, variable cost is the productized portion of the material cost incurred in the current month among the material inventory at the beginning of the month and the material purchased in the current month, and fixed cost is the direct labor cost incurred in the current month and the manufacturing overhead cost incurred for the product.

Cost of sales is the cost of the products shipped during the current month out of the product inventory at the beginning of the month and the products that entered the warehouse during the current month.


Cost Management

Understand standard and actual costs in the same way


If the total average unit price of materials can be calculated by the cost management system, the material cost incurred in the current month, the manufacturing cost in the current month, and the cost of sales in the current month can be calculated by accumulating processing costs for each process using the cumulative method, which is necessary for creating P/L.
The manufacturing cost calculated by "inventory of work in progress at the beginning of the month + expenses incurred during the month - inventory of work in progress at the end of the month" can also be calculated by "total average unit price of input products x quantity of input products + own process processing cost", and the breakdown by cost item for each process becomes a cumulative method.

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Cost Management

Allocation rate for manufacturing overhead and direct labor costs


Direct labor costs should be prorated in proportion to time (manpower = efficiency), such as "how much per hour", while depreciation of buildings (manufacturing overhead costs) should be prorated according to production volume, such as "how much per piece". Since the criteria for prorating direct labor costs and manufacturing overhead costs are different, the prorating ratio is also differentiated as a wage rate and an allocation rate.


Cost Management

The Flow of Cost of Goods Manufactured


OK now that you've had a chance to look at the numbers, let's get right into them. Let's assume that we are all accountants for Morgana manufacturing company and that we manufacture high-quality furniture like tables etc.


Cost Management

Categories of product cost


OK let's assume in this example that Morgana manufacturing company produces tables. Product cost, all product cost can be categorized into three subgroups, direct material DM, direct labor DL, manufacturing / factory overhead, I use both the terms because some text books use factory overhead, and some text books use manufacturing overhead.


Cost Management

Cost of Sales and Periodic Cost


All SG&A expenses are expensed in the month in which they are incurred, but the cost of product manufacturing is expensed (cost of sales) only for what is sold at the time of shipment or at the end of the month, and the remainder becomes inventory at the end of the month as an asset.


Cost Management

What does it mean to deduct from the cost of production or the cost of sales in the transfer to another account?


It is the same as depreciation and allowance for doubtful accounts that when a material failure or loss (a loss after it has become a work in process) occurs, the work in process (or manufacturing costs such as material or processing costs) is not reduced directly, but indirectly transferred to another account through a transfer to another account.


Cost Management

How many minutes per piece is the man-hour, how much per hour is the wage rate


The relationship between the number of man-hours (how many minutes per piece) and the wage rate (how much per hour) used to be based on an agreement between the orderer and the subcontractor and the wage payment = standard man-hours x standard wage rate, but now it seems to have a stronger meaning as a management indicator.


Cost Management

Variable Cost and Fixed Cost - Unit Cost and Total Cost


OK, let's pay attention now to fixed cost. So if we assume that the fixed cost we have is rent, rent of $1,000 a month. Again let's assume we will be paying a rent of $1,000 a month. So if we have to pay rent at $1,000 a month, let's see what would be the behavior pattern of unit fixed costs and total fixed costs as we change the volume of tables manufactured.