{"id":67043,"date":"2017-07-16T08:11:12","date_gmt":"2017-07-16T01:11:12","guid":{"rendered":"https:\/\/bahtera.jp\/wip-cost\/"},"modified":"2025-03-20T13:09:53","modified_gmt":"2025-03-20T06:09:53","slug":"wip-cost","status":"publish","type":"post","link":"https:\/\/bahtera.jp\/en\/wip-cost\/","title":{"rendered":"Handling Fixed Costs in Indonesia When Production Results Span Across Months and in Months Without Production"},"content":{"rendered":"

The costs incurred based on input results are direct material costs, the costs incurred based on production volume are manufacturing costs, and the costs incurred based on shipment are the cost of goods sold. When input results and production results span across months, the input results for the current month remain as ending work-in-process inventory, and if production results are not recorded by the end of the following month, the work-in-process remains without any costs incurred.
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Cost Management in Indonesia<\/p>\r\n\t\t\t\t\t\t\t\r\n\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t

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Mass production factories, such as two- and four-wheeler parts manufacturers common in Indonesia, have multiple manufacturing processes. In such cases, processing costs are calculated for each process, and the method of aggregating these costs into the product is called process costing. In this approach, labor costs and manufacturing overheads are recorded at the end of the month by the accounting department, transferred to inventory assets, and then allocated accordingly. On the other hand, in factories producing custom-made items under individual order production, job order costing is used, where costs are aggregated by order number or project number. In this case, … <\/p>\n\t\t\t\t\t\t\t\t<\/div>\r\n\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t

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The Importance of Cost Management<\/h2>\n

In corporate accounting, revenue (sales) and expenses (purchases) are recognized at the time a transaction occurs, whether based on delivery (shipment) or inspection criteria. Therefore, the profit calculated by subtracting expenses from revenue for a month does not match the actual cash and deposit balance. Even if the payment terms with the supplier of materials and the customer buying the products are both set to the end of the following month, the pressure of cash flow for material purchase payments at the end of the month varies depending on the company due to the following conditions:<\/p>\n

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  1. Cash and deposit balance derived from sales or capital<\/li>\n
  2. Depreciation expenses that reduce apparent profit<\/li>\n
  3. Payments for manufacturing fixed costs other than material costs incurred during the month<\/li>\n
  4. Payments for selling, general, and administrative expenses and non-operating expenses<\/li>\n
  5. Salary payments that come before receiving payments from customers<\/li>\n<\/ol>\n<\/div>\n<\/div>\n

    Even if sales increase due to discounting in sales management, a smaller gross profit can lead to a loss when accounting for SG&A and non-operating expenses. However, raising the selling price isn\u2019t easy due to market price considerations, so the focus shifts to cost reduction at the production management stage, where internal effort can make a difference. That said, managing manufacturing costs too meticulously only increases the management burden, so the benchmark for the level of cost management becomes \u201cwhether the results can be utilized for production management.\u201d<\/p>\n

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    1. Financial Accounting Perspective (From Cost Management to Accounting): Convert production volume-based results from the shop floor into monetary terms (manufacturing cost reports) and link them to accounting (P\/L).<\/li>\n
    2. Management Accounting Perspective (From Cost Management to Production Management): Analyze productivity by comparing actual results against standard costs or budgeted costs.<\/li>\n<\/ol>\n<\/div>\n<\/div>\n

      Costs Incurred, Manufacturing Costs, and Cost of Goods Sold<\/h2>\n

      Materials become costs incurred not when purchased but when input, remaining as work-in-process inventory until production results are recorded. They become manufacturing costs when production results are recorded and cost of goods sold when shipped.<\/p>\n

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      1. Shipment-Based Costs Incurred
        \nThree-Way Method: Cost of Goods Sold = Beginning Product Carryover + Manufacturing Costs – Ending Product Balance
        \nTotal Average Method: Cost of Goods Sold = Total Average Product Unit Price \u00d7 Shipment Quantity<\/li>\n
      2. Production Result-Based Costs Incurred
        \nThree-Way Method: Manufacturing Costs = Beginning Work-in-Process Carryover + Costs Incurred This Month – Ending Work-in-Process Balance
        \nTotal Average Method: Total Average Unit Price of Input Items \u00d7 Input Quantity + Processing Costs<\/li>\n
      3. Input Result-Based Costs Incurred
        \nThree-Way Method: Material Costs Incurred = Beginning Material Carryover + Purchase Costs This Month – Ending Material Balance
        \nTotal Average Method: Material Costs Incurred = Total Average Unit Price of Materials \u00d7 Input Quantity<\/li>\n<\/ol>\n<\/div>\n<\/div>\n

        When input results and production results are always recorded together, all costs incurred should be aggregated within some SKU (Stock Keeping Unit) item number. If the beginning inventory is 0 and the costs incurred this month are 100, the following holds true, and on the receipt and disbursement ledger, production results for products are recorded with the total average unit price at the time of receipt:<\/p>\n

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