Product cost - complex structure

Cost Accounts 1213 views 6 replies

Deepika

Analyst

25 Points Joined April 2014

Hi Guys,

I need all of your help urgently. I am working for a manufacturing organisation outside India. Here they are the private company, and planning for IPO soon. I have beeb appointed here in order to make some system related to costing here.

My convern is that, in this organisation they have multiple products with different processes steps for all the products. Documentation is not good either. So basically:

A Company - 40 to 50 Manufacuring Process - More than 100 Products. Each product has set a processes applicable on it. I am lost in the structure. As I see lack of documentation, lack of information, most of the numbers are either average based or assumption based. Not sure how to first get the process cost and then to reach at the product level cost. Can any one help me to get this riddle resolved. I am stuck and want to save my job and do something really good to save the image of a chartered accountant. I know that this is more of a cost accountant job but I had no option but to grab this.

Can anyone help to give a direction please.

Best Regards

CA Deepika

Replies (6)

Ankit

CA CS

3064 Points Joined June 2009

Dear Deepika,

You are getting confused, since you are looking at it as a whole. Instead, take each product as a standalone and make the system for that product only, and once you are through with that product, take up the second one. Also, once you make it for 2-3 products, you will realise that the way the system has to work, will mostly be the same for all of the products except for little changes here and there.

To save on time, pick up related or similar products and do them together. Eg. If say Maruti suziki were to manufacture Swift Lxi, Vxi and Zxi…these are similar except for some features here and there. So all this you could take together.

Incase you need any help, let me know

CMA. Rakesh Kataria

Practising Cost Accountant

536 Points Joined February 2010

You can send me mail on rakesh @ kataria-associates.com, i will help you to set up cost accounting system. you need to read cost accoouting standards issued by ICAI-CMA,it will help you more.

Sidharth

student

25 Points Joined November 2013

treat every product seperately and trace its processes. and build a system of cost accounting in the factory.

PARVEEN CHUGH

CA FINAL STUDENT

39 Points Joined July 2009

Yes rightly said Sir do it product wise and first understand the process of manufacturing then step by step then you can easily build the costing system

shalin

Office

22 Points Joined May 2011

If you are using sap system then u can do controlling better with product class. U can define each product n hierarchy in sap.. based on this u can have costing structure. .

Deepika

Analyst

25 Points Joined April 2014

Thanks all for your response.... The problem is the product cost will be direct material+ labour+process cost+ etc. i need to first calculate the process cost... So their are more than 50 processes... My boss doesn't want me to use top down approach... He wants bottom up approach... Where i go to each process... Picking up consumables cost, labour cost, electricity etc. but i am nt sure if manpower cost to be included here... N if yes den wat is direct labor and how to reach der... Cz right now with this method cost i am getting is too high doesnt make sense... Their is no SAP in the company at the moment.... Thanks rakesh i will surely get in touch thru mail. Hope you understand my query here and help in getting the right way....