Production methods

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Production methods by Mind Map: Production methods

1. Job costing

1.1. involves the process of collecting information about the costs linked with a specific production or service job.

1.2. many different product produce and require allocated costing.

1.2.1. Example, Aircraft manufacturing, car manufacturing large scale construction and movie production.

1.3. combine Direct Material, DIrect Labor, Manufacturing Overhead

1.3.1. Direct Material is material that direct involve in production process.

1.3.2. Direct Labor is worker involve in production process.

1.3.3. Manufacturing overhead is variable cost such as indirect labor and indirect material.

1.4. Work in Progress is work still in progress until it was done.

1.5. Finish goods: That work is finally complete and ready to sold to customer.

1.6. Cost of goods sold: When the finish good is sold to customer it need to transfer to cost of good sold. Double entry the Sales account.

2. Batch costing

2.1. various of job costing, generally adopted when the production is made in small lots of identical units

2.1.1. Example of company using this methods such as manufacturing of tyres, ready-made garment and pharmacueticals industry.

2.2. There are two types of costing which are set-up cost and carrying cost.

2.2.1. When batch size increase, set up cost decrease, and carrying cost increase.

2.3. Pharmaceutical industry: Producer will make the batch of tablets instead of producing single tablet. This will easy to sell the batch in market.​

3. Service costing

3.1. known as operation costing which is used in organizations which provide services instead of producing goods.​

3.1.1. Example, this method use in service organization like hospitals, hotels, colleges, transport and boiler houses.

3.2. All costs are suitably classified under fixed and variable. The purpose of cost per unit is used for price fixation and for cost control.

3.2.1. The cost of units are calculated as follows: Cost per service unit = Total cost for providing the service ÷ The number of service units. For example, total cost for a bus trip divided by the number of seats for passengers to arrive at the cost of each ticket.

3.3. Power houses engaged in electricity generation use power house costing. Identifying the costs associated with the power generation to prepare the operating cost statements. The cost unit for electricity generation is cost per kilowatt-hour.