Cost Systems In Production And Decision Making

Cost systems in production and decision making

Introduction

Costing systems are an elementary part for the registration of the production cost, because they contribute to the way of distributing cost values for a unique product or a group of these within a transformation process. These systems are used in order to provide information that provides reliability and favors decisions in how to formulate plans and strategies, the allocation of a sale price, planning and control of costs in various operations and tasks (Toro, 2016).

The end of the use of costing systems is to be able to provide information, adequate and timely, which contributes to choosing decisions at the organizational level. So that in this way good business management can be obtained;that is effective, efficient and that can be adapted optimally to the needs of each situation in which the organization can be found.

Cost systems by production orders

In the system by production orders, the product costs “are calculated for each separate lot, in addition to the costs for each factory department or structural division” (Ríos, 2011, p. two). Performing this division is indispensable to know the difference in quantity, size and quality of a product within each order within production.

It is necessary to understand that this method applies the determination of production costs, based on specific work orders, required by a client or by the object of the business. Because there is the manufacture of a product in several quantities, it must be known that this method can be carried out within businesses that involve large production volumes, since, in those that do not produce large dimensions of a certain product, it would involveAn expense of time and resources.

(Torres, 2002)

The purpose of the system by production orders distinguishes between the processes within the production, the flow within each work order, through a monitoring of the units of the different orders for an adequate accumulation of the costs (Torres, 2002). In addition, Ortega and Giraldo (2014) mention that in this way the cost of the product can be known at a specific time required.

To implement this mentioned system, the direct and indirect elements for the manufacture of a product must be taken into account among which are the raw material, labor and indirect manufacturing costs. In addition, for each production order it is necessary. In addition to detailing the total accumulation of the costs of raw material, labor and indirect costs (Torres, 2002).

The ABC cost system for its acronym in English Activity Based Costing, according to article ABC: the steps to implement the Cost System of the ESAN University of Peru, define the ABC costs as a tool for the increase in competitiveness thatIt measures "the costs generated by the activities and tasks that make up a process for obtaining a product".

This costing system is developed in order to be able to carry out an allocation, control and rationalization of the costs that are involved when transforming a product. In addition, Berrio and Castrillón (2008) comment that it is considered an instrument to maintain adequate management control, since, it allows an analysis of the resources and thus provide useful, timely and objective information, in order to make strategic decisions.

The implementation of the ABC cost system consists of paying first an activity, and after this, carrying out a cost allocation according to the use of. Through this, the cost can be determined and how activities, resources and cost objects are performed;where each resource is assigned to a certain activity (Toro, 2010).

The ABC cost methodology is performed as follows:

1. An analysis of the productive process is carried out and the activities that are necessary to carry out each process are identified.
2. From the activities identified, a study of costs and volumes of resources that are consumed by each of the tasks are developed.
3. The cost generating factors are examined, based on a cause-effect ratio and a base is assigned in relation to cost formulas.
4. An analysis of the mechanisms for cost absorption for each activity is carried out.

The cost is calculated, taking into account indirect costs and direct costs. (Toro, 2010)

Short -term decisions

Costing systems help make important decisions within a business, in a certain period of time. Among these are short -term decisions, of which some indispensable, and thus be able to know in the future if a certain product can be profitable or not. In addition, that within a business it is important to know if a certain product incurs high production costs, if you can add a product line or eliminate any, decide which are the best cost options for a product, modify activities for the production process, among other. (Merlo, Reinoso, Rubino, & Ruggeri, 2013)

A correct execution in decision making can lead to a company being able to be in an optimal dimension, that is, that each decision carried out places the company at the precise time where it must be found, so that it can count on all thenecessary resources and develop effective management. In every organization there is decision -making that can be routinely or based on a level of periodicity, however, it is essential, the product to be offered and the activities that will be carried out. (Merlo, Reinoso, Rubino, & Ruggeri, 2013)

Decision making process

In order to perform a good decision making, it is important to obtain information that is relevant, appropriate to what you want to achieve and reliable. In order to choose the best way to follow, according to the different situations in which a company or the alternatives that are available can be found. (Merlo, Reinoso, Rubino, & Ruggeri, 2013)

A series of stages for decision making can be taken into account, among which they can be:

1. Definition of the problem, where it is intended to find factors that are critical of the situation from which an analysis is to be developed.
2. Problem analysis, evaluate the information about the situation.
3. Alternative identification, consists of setting possible scenarios, where solutions are presented.
4. Alternative evaluation, involves developing courses of action based on possible consequences. (Merlo, Reinoso, Rubino, & Ruggeri, 2013)

Decision making shows that a situation is being valued and also considered to choose the best options that direct the course of an organization, business, company, among others. This is why a tool such as costing systems help the information subject to analysis, providing an adequate approach to adoption and proper taking of various business decisions. In addition, that it maintains a projection of the costs that a product, analysis of variables and levels other than the costs generated can be incurred. (Merlo, Reinoso, Rubino, & Ruggeri, 2013)

Influence of the costing system by production and ABC orders on management decision making

The management decisions to be taken, lie on how to choose an adequate course of action. Giménez, et al, (2006) In his book Decisions in cost management to create value allud that the ABC costing system can influence decision making, so that this can only provide accurate information about costs in costs inrelationship to activities. This information can be used for applications with an approach to business management based on activities involving the production process. This mentioned method provides information to make decisions, regarding the causes that generate an activity and the analysis of how these develop. It allows management to have a vision focused on what is really happening in the company, since, it cannot be manipulated, since it is based on task. In addition, it provides information to obtain an increase in competitiveness, which causes that, by management, decisions can be made to generate value to the company and thus be able to maintain good levels of production and have adequate cost control. (Giménez, et al, 2006)

On the other hand, the costing system by production orders helps to know the set of standards and procedures that are used to prepare products under certain specific requirements, since, the costs are calculated based on specific lots of production. This system helps management can make decisions regarding the costs of a product that can be directly focused on quantity, size or quality. You can provide information that becomes historical, since, it allows to accumulate all positions regarding a work order. It provides detailed information regarding a single order, so it offers bases for a comparison between one order and another, which would lead to be able to estimate costs, which in a future could be similar. Management can have historical data, in order to know how much it can cost to produce a single product or a group of products, where you can determine whether they will contribute to a profitability or loss. (Egas, 2018)

conclusion

In conclusion, it can be determined that costing systems contribute to determining the value of the cost of a product, providing the necessary information to make appropriate decisions in timely times and thus perform proper business management. As costing systems, the costing system can be emphasized by production and ABC orders, in which the first focuses on specific work orders, and the second focuses on the cost analysis on activities. These two methods help the delivery of data in terms of product costs, although both focus on different terms, they provide cost information, which also help to make decisions.

Being able to make an adequate decision in terms of costs, contributes to the courses of action within a productive process. It is important to establish within the decision making, parameters on where and how to obtain the information, since from there part of how to direct the different activities, processes, tasks, among others, that make a correct administration develop.

References

• Berrio, d., & Castrillón, J. (2008). Costs to manage manufacturing, commercial and service organizations. Uninorte.
• Egas, m. (2018). Proposal for a cost system by production orders. Central University of Ecuador, Quito .
• Giménez, c., Benvenuto, e. M., Benvenuto, or., Cahwje, j. A., Carratalá, j. M., Car,
• R. R., . . . Gatto, a. (2006). Decisions in cost management to create value / coordination. Buenos Aires: Errepar
• Merlo, e., Reinoso, n., Rubino, m., & Ruggeri, and. (2013). Costs and decision making . National University of Cuyo.
• Muñoz, m., Espinoza, r., Zúñiga, x., Guerrero, a., & Campos, H. (2017). Cost accounting for administrative management. Unemi. Holguin.
• Ortega, m., & J, G. (2014). Cost system design by production orders . Universidad del Valle, Santiago de Calí.
• Rivers, h. (2011). Cost notes: Production and production processes costs. Quito: Central University of Ecuador.
• Torres, s. A. (2002). Cost accounting: Decision making analysis. Recovered from https: // ebookcentral.Proquest.com
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• Bull, l. F. J. (2016). ABC costs and budgets: tools for productivity) 2nd. ed.). Recovered dehttps: // ebookcentral.Proquest.com
• ESAN UNIVERSITY. (2018). ABC: The steps to implement the cost system. Connections.