Sisteme de Cost In Fabricatie

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Cost systems in Production

Surname NAME

1) Title (Prof., PhD, etc.), position, department, institute, city, country

Abstract: This paper aims to introduce and explains the traditional cost concepts and defines the terms used in industry by workers and managers in production, engineering, marketing, and accounting activities. The manufacturing company combines and consumes economic resources to produce a finished product. Three major categories of businesses are discussed: manufacturing, merchandising, and service industries. Service industries provide services instead of manufacturing a product.The changes brought about by the global competitive market and the technological impact of computers have made it necessary to leam not only traditional terminology but new cost concepts and terms as well. Merchandising firms, such as wholesalers and retailers, provide the middleman function of getting the manufactured product to the consumer. Having in view these facts, we suggest a discussion on the new developments in managerial accounting brought about by the expansion of domestic industries into a global market environment.

Key words:automotive, industry, costs, ABC method, production, efficiency.

INTRODUCTION

Our objective in this paper is to examine the cost accumulation procedure that is required for inventory valuation and profit measurement for a process costing system. We begin with a description of the flow of production and costs in a process costing environment. We shall then focus on the cost accumulation system. To provide a structured presentation three different scenarios will be presented. First, all output is fully complete. Second, ending work in progress exists, but no beginning work in progress, and some of the units started during the period arc incomplete at the end of the period. Our third scenario is the existence of both beginning and ending work in progress of uncompleted units. One of the most complex areas in process costing is accounting for losses when units within the process are both fully and partially complete. The cost accumulation procedure follows this production flow. Control accounts are established for each process (or department) and direct and indirect costs are assigned to each process. A process costing system is easier to operate than a job costing system because the detailed work of allocating costs to many individual cost units is unnecessary. Also, many of the costs that are indirect in a job costing system may be regarded as direct in a process costing system. For example, supervision and depreciation that is confined to one process would be treated as part of the direct costs of that process in a process costing system, since these costs are directly attributable to the cost object (i.e. the department or process). However, such costs are normally regarded as indirect in a job costing system because they are not directly attributable to a specific job. Besides different levels of accuracy, different cost information is required for different purposes. For meeting external financial accounting requirements, financial accounting regulations and legal requirements in most countries require that inventories should be valued at manufacturing cost. Therefore only manufacturing costs are assigned to products for meeting external financial accounting requirements. For decision-making non-manufacturing costs must be taken into account and assigned to products. Not all costs, however may be relevant for decisionmaking. For example, depreciation of plant and machinery will not be affected by a decision to discontinue a product. Such costs were described in the previous chapter as irrelevant and sunk for decision-making. Thus depreciation of plant must be assigned to products for inventory valuation bur it should not be assigned for discontinuation decisions. For decision-making purposes, however, more accurate product costs are required so that we can distinguish between profitable and unprofitable products. By more accurately measuring the resources consumed by products, or other cost objects, a firm can identify its sources of profits and losses. If the cost system does not capture sufficiently accurately the consumption of resources by products, the reported product costs will be distorted, and there is a danger that managers may drop profitable products or continue production of unprofitable products. Manufacturing organizations assign costs to products for two purposes: first, for internal profit measurement and external financial accounting requirements in order to allocate the manufacturing costs incurred during a period between cost of goods sold and inventories; secondly, to provide useful information for managerial decision-making requirements. In order to meet financial accounting requirements, it may not be necessary to accurately trace costs to individual products.

2. Empirical research

2.1. Cost efficiency in the automotive industry

One of the predominant success factors in the automobile industry is scale as the development of cars is highly resource demanding. The development of a new model requires more than 30,0110 engineering hours[1][9].

Source: IWK presentation

Figure no1. Cost optimisation strategy

The cost-cutting activity can only be carried out where there are reservations in this respect, only when the nature and volume of these reserves are known, as well as factoring could lead to their mobilization.The most important goal of cost analysis is to increase resource efficiency in internal value creation processes. This means reducing resource consumption while maintaining the value created or, ideally, increasing it. At the same time, solutions must not have negative effects on business performance indicators of the nature of the volume of activity. This means that cost-optimization solutions must be sustainable(see Figure no.1).

Fiat’s CEO Sergio Marehiunne for instance believes that car manufacturers from developed countries have to produce five to six million cars p.a. to compete successfully . In addition the Asian low-wage countries such as China, which are considered to be the growth markets of the future for automobile sales, are already being focussed upon as production locations for western automotive producers and suppliers[2]. A shift of production is worthwhile here, not only because of the production costs, but also because of increasing sales and demand locally.

Figure no. 2. The projected increase in ASIA car production by 2020

The labour costs tend to decrease, the further east one goes. On the other hand, logistics and transport costs increase with distance. Thus it is important, especially for the supply firms, which make most of their products for purchasers in Germany or Western Europe, to evaluate the trade-off between low labour costs and high logistics costs correctly[8]. Depending on the typology of a supplier and the special characteristics of the components produced, each supplier will have a different geographical profitability limit, up to which a shift would still make sense, for the world's second- biggest supply enterprise, Delphi, this profitability limit is almost 3,000 km from Germany, according to the company itself, in the Russian town of Samara, where the company produces cable sets for purchasers throughout Europe[3]. The generic automotive industry business model is founded upon three key innovations arising in the twentieth century: the Ford moving assembly line and related concepts (such as standardized parts, short cycle times), the litidd all-steel vehicle and related concepis (such as painted vehicle bodies) and the Sloan concepts of creating a range of brands and models and related concepts (such as credit for car purchases, used-car trade-ins, annual model cycles) [10]. Over time, (here has been a process of convergence and consolidation of this business model, as well as of change and refinement. A difficult issue is to determine at what point such changes and refinements amount to an evolution of the business model[4]. The fiord and Rudd innovations were the key to defining the value creation aspect of the automotive industry business model, while the Sloan innovations were largely concerned with aspects of value capture. Of course, the two are intimately related. For example, Sloan pioneered the use of paint and colour, along with an emphasis on styling and regular styling changes, as a means of stimulating continuing demand for new cars. This practice was only practicable with the adoption of all-steel body technology, which allowed the use of new paint technologies. Achieving the "American look,” which may include significant changes in hod y work and Interiors, is of major importance to car sales. Attempts to market ike same ear, identical in every detail, across global markets have been dismal failures. l:or example, tastes in Europe often differ from those in the US[7]. when it comes to appearance and styling. In addition, due to vastly higher fuel prices and taxes, consumers in many European markets demand much higher fuel economy than their American peers (although this will change as gasoline prices in ihe L.S. remain high). Ford spent $6 billion in the early 1 WOs to market the Vlondeo/C’ontour around the world. Sales in Europe were fine, but U S. buyers were put off by its compactness and relatively high price. The General Motors of loday operates in lour global regions: North America; Europe; Asia/Pacifie; and Latin America/Africa/Middle Fast. GM reports that globalization of engineering, styling and manufacturing is saving about 20% on components anti achieving a 40 % reduction in development costs. The challenge is to avoid building cars with a cookie-culler feeling. At present, this glohalization is largely restricted to design, engineering and prototyping[5]. As of 2005, about 79.9% of the components used in assembling u North American GM car were manufactured in North America. However, the pressure to save costs will move an increasing amount oI component manufacturing (o Asia, In 2006, GM ended contracts with approximately 500 of the .1,700 North American companies that supplied its parts. Toyota and Honda, in contrast, each use about 600 suppliers in North America. At Ford. a sweeping plan to slash the number of global suppliers Is underway. The company hopes to cul its 2. 500 current suppliers lo less than 1,000 by offering larger long-term contracts to a smaller number of suppliers, thereby streamlining the product process and saving time and money. If successful, Ford could save as much as $7 billion per year through more efficient purchasing. The initial phase of the plan will ai led vehicles huill in 200S through 2009[6].

2.2. The role of the ABC method in the process of manufacturing in the the automotive industry

The arguments behind the ABC costing method are based on generally on the superior quality of the information generated compared to those of the tardial calculation. According to the theory of optimizing economic information, the best information is related to the best decision taken and the best decision taken increases the economic value of the firm. The classical methods of calculus have, over time, been critically acclaimed justified, among which we mention: the use in the distribution of indirect, common expenses of sections, bases chosen according to quantitative criteria. In doing so, carry out some analyzes comparative cost of the product unit is difficult, given that the values were established on the basis of coefficients, without having established causality links with generating activities; tracking cost savings without resorting to other growth methods competitiveness, such as the development of marketing strategies[11] .

The ABC calculation method has its origins in the specialty studies and experiences of the United States of America in the 1960s and 1970s. Subsequently, the calculation method was refined without affecting the original concept. During the 1970s and 1980s, Robin Cooper and other American scholars (Kaplan, Porter, Miller) and Fansi (Mevellec, Lebas, Lorino) developed the ABC method in the current version. The ABC method came in response to the influence of technical progress and the emergence of automation and computer systems[12]. This in principle shows that analysis of causal chains has to correlate the products with the activities intended for the outside of an entity. In this context, the modernization of management accounting means transforming and adapting it to the realities and exigencies of the present, changing the tools, processes and methods of work to correspond to current technical and scientific progress. According to the ABC method, expenditures are allocated to activities based on cost inducers and subsequently included in the cost of products[13]. The opportunities offered by the ABC calculation method are evident in computer assisted technological environments. Due to the development of IT, the on-line assisting of productive processes leads to the dynamics of the method's application procedures, even for the most variable, dynamic and discontinuous operations[14]. It can be noticed that according to the ABC method, costs are no longer directly and indirectly differentiated, because each of them has a direct link with generating activities. Thus, the management of activities will impose costs, which in turn will influence the proper management of resources[15].

The ABC method has a well-defined flow of processes, a set of steps that determine the process of conducting the calculation, namely: Step 1: identify and analyze the activities that form the basis of cost allocation; Step 2: collect costs; Step 3: Identify factors that determine the cost of an activity, called cost inducers and the calculation of unit costs on inducers; Step 4: Impairment of carrier costs. The ABC method is based on the principle that activities generate costs, and it is the value carriers that "create" the demand for those activities. It is necessary to identify different activities and to create a cost center for each cost-generating activity. Activities can be extremely varied [16].

3. Methodology and experimental data

Total investment in automotive component production exceeded EUR 500 million in 2006, and the market attracted ten new foreign companies, which invested between five and 170 million euros [17]. The main competition on the tire market, estimated at 2.2 million units in 2007, is manifested by Michelin manufacturers, Zalau and Floresti factories, Continental AG, whose activity is concentrated in the western part of the country, and by Pirelli, installed in Slatina [18]. By 2008, investments in the automotive sector concentrated in the Timisoara-Arad area, but the acute lack of labor force in these areas generated a migration of investments to other locations, one of them being Cluj County. [19]

Figure no.3 Evolution of Romania Aautomotive industry 2007-2016

Even though in Romania there are only two factories where cars are assembled, in our country there are quite a few factories producing auto parts. In fact, many Romanians work in this area, with the automotive industry being the main employer at national level. The presence of Dacia and Ford in our country also attracted the investments in the auto parts factories, which deliver components to these plants. However, automotive parts manufactured in Romania are not only for the domestic market but also for export. For example, Dacia, the largest company in our country, has more than 14,000 employees in the Mioveni plant, and these are joined by the representatives, which makes this company a basic cell in the national economy. [20]

In order to achieve the purpose of the research we have pursued the following objectives: studying the current conceptual framework of the management accounting on the basis of the internal and international literature; tracking the evolution of cost optimization in Romania, compared to the financial one; identifying the role of cost information in substantiating managerial decisions; studying the classic methods of costing applied in Romanian companies; studying and applying modern costing methods in an economic entity; identifying the advantages and disadvantages of traditional methods compared to modern ones;

The aim of the research is to improve the costing methodology by implementing modern ABC calculation methods in the automotive industry. The scientific approach was not limited to theoretical aspects but went further with the verification of the degree to which these methods can be applied in the studied sector by highlighting the advantages and disadvantages of the use of classical methods as compared to modern ones. Through the research it was intended to obtain answers to current problems in the field of accounting management, by conducting a study on some enterprises that operate in the machine industry.

Description of the financial and accounting conditions of the production section from automovive industry, required to apply the ABC method.

Direct Expenses:

We believe that in the of the production section from automovive industry section in May 2018 the following finished products were obtained:

– original piece: 1,500,000 pcs

– Improved piece: 750,000 pcs

Total direct expenses:

– original piece: 2,080,305 lei, of which raw material expenses: 1,788,000 lei

– improved piece: 1,123,028.5 lei, out of which raw material expenses: 976. 875

lei;

– total raw materials expenses: 2,764,875 lei

Direct Work:

– original piece :: 292,305 lei: 1,500,000 pcs = 0, 1949 lei / pcs

– improved piece: 146,152.5 ei: 750,000 pcs = 0, 1949 lei / pcs

Indirect costs: 55,975.62 lei

Sales:

– original piece: 1,500,000 pcs. * 2 lei / piece = 3.000.000 lei

– improved piece :: 750,000 pcs * 2,5 lei / piece = 1,875,000 lei

The ratio of the common part of inductors:

– original piece : 2/3

– Improved piece: – 1/3

As described above, we can identify the following activities within

processes of supply, production, sales, settlement, indirect costs.

The situation of activities and inductors is presented in table 1.

Table 1 Situation of activities and inductors

Cost drivers or cost generators identified, according to table no. 2, were:

Table 2

Situation of cost inductors

The number of orders made with suppliers and customers, the number of batches of raw materials

prepared for release in manufacturing, number of marketed products and number of sets of

stocks, references managed, transported, handled and for which the bookkeeping is provided

primary and financial.

Hourly labor value:

– original piece: 1,500,000 pcs * 0,1949 lei / piece = 292,305 lei

– Improved piece: 750,000 pcs * 0.1949 lei / piece = 149.152,5 lei

Total work: 441,457.5 lei

Full cost determined by order method:

– original piece: 1, 4496 lei / pcs

– Improved piece: 1, 4382 lei / pcs

In these circumstances, the unit profit determined as the difference between the selling price and the

production cost:

– original piece: 2 lei / piece * 1,4496 lei / piece = 0,5504 lei / pcs

– Improved piece: 2.5 lei / piece * 1.4382 lei / piece = 1.0618 lei / pcs

The value of the registered profit is:

– original piece :: 1,500,000 lei * 0,5504 lei / piece = 825,600 lei

– improved piece: 750,000 lei * 1,0618 lei / piece = 796,350 lei

 TOTAL = 1,621,950 lei

As a result of applying the order method, we find the following:

– the unit profit obtained from the sale of superior product is net higher, 51.8%

higher than the profit achieved by selling the original piece:

– the total value of the registered profit is equal because the quantity of superior product

sold is double the amount of improved piece:

– the unit produces a larger quantity of simple product because it has a market demand

higher than the lower price, even when compared to the product, superior product.

has a low unitary profit.

– the ordering method allocates indirect costs, general expenses

administration and sales expenses by applying coefficients with chosen distribution bases

random, without identifying exactly which of the manufactured products leads to more indirect costs

big and what are the causes. Determining the cost of inductors is done by reporting the value of indirect costs to the volume of the cost inductor. The situation of the costs of the inductors for the identified activities is presented in Table 3.

Table 3.

Determination of unit costs and unitary and global profit. Unit costs through the ABC method

The method of calculating ABC costs implies splitting indirect costs by kind

of activities, generating expenses.

Induction determination was performed according to the flow of specific operations performed in within the framework of the production activity, but also for the supporting activities.

As a result of applying the ABC method, it was found that the unit values ​​for the two

products are:

Unit cost:

– original piece – 1, 39380 lei / piece;

– Improved piece: – 1, 5713 lei / piece;

Unit profit:

– original product – 0,6062 lei / piece;

– Improved piece: – 0.9287 lei / piece;

Total profit:

– original piece – 909,300 lei;

– Improved piece: – 696,525 lei;

The following are noted:

– Both products are profitable, but in relation to the ordering method,

the ratio of unit profits is not so great, the unit profit for the improved piece being 34% higher than the profit obtained by selling simple product;

– the value of the profit obtained from the sale of the original piece is greater than

the profit obtained from the sale of the superior product;

– the enterprise gets a high profit through the production of an improved piece, but thanks

lower demand, may choose to replace or improve its quality;

– the unit cost for the improved piece is higher than the one determined by the method

on orders, which means that there are indirect costs that support this production

generates higher costs. Activity-based management is a complex approach that is associated with activity-based costing and guides the entity's performance towards performance in a modern, international market. Because it has as informational support ABC's calculation method has been named by management specialists based on ABC activities.

4. Results and proposals

The costing methodologies are different by the used calculation techniques and procedures, and for this reason notable differences are apparent: Classical costing systems have as a fundamental principle that the total expenditure expenditure is included, depending on the cost category required by the synthesis reports ; although the products generate indirect non-uniform costs, traditional methods use randomly assigned distribution coefficients, which results in a uniform inclusion in the cost of products. The ABC method proposes changing the entire costing methodology by directly involving all employees in improving the work, reducing costs, increasing productivity. Analyzing the results obtained following the application of the ABC calculation method and the traditional global calculation methods and orders to the research entity, the following are identified: Direct costs are calculated in a similar way to traditional methods (global claxing method, ordering method) , as well as by the activity-based calculation method; indirect costs are treated differently, meaning that part of indirect costs under the ABC

method are considered to be direct, activity-related and indirect expense is considerably reduced; Classical methods allocate indirect costs with the allocation allowances without conducting a causal analysis; general administration costs are treated differently in the two approaches; both the global and the com- mand methods are calculated by summing the values, and the ABC method recovers them, assigns them to the generating activities and allocates them to the cost inductors; the ABC method proposes a more realistic cost allocation alternative and focuses on establishing the relationship between costs and activities; Classical, global and orderly methods consider general expenses to be part of indirect costs, are disinterested and are passed to product cost at the end of the month; sales expenses are treated in the same way as general administrative expenses; classic methods include them in indirect costs at the end of the management period, and the ABC calculation method associates them with generating activities; the unit cost of production calculated by traditional methods is obtained by reporting the total expenditure on the production obtained, and for the ABC method the entire calculation is organized by activity. Using the ABC method, many manufacturing companies in the Romanian automotive industry could improve their microeconomic profit, and at the macroeconomic level, the country's industry could be more efficient.

Figure no. 4.Improved product

5. CONCLUSIONS

In the ABC model, the sales price may have a downward trend relative to sales revenue, with the increase in sales volumes being made with the granting of ever higher price reductions.

The change in turnover determines a decrease in expenditures in the first part of the variation interval (PR1, PR2) and a sharp increase in the latter part.

Figure no.4. ABC´s trend

Applying the ABC computation method brings important advantages to managing the company's situation by identifying cost centers and cost-information system strategies. Activity Based Costing is a modern method of calculating the costs discovered, implemented and developed especially by the Anglo-Saxon countries and Japan. It has as a basic principle the analysis of activities and processes, generating costs, which changes the optics of traditional methods. In this context, not products or services generate costs, but activities and 191 processes. Modern costing methods change the vision of organizing the company's accounting, as well as organizing information-accounting flows. There are several costing methods that have emerged

as a management accounting response to technical and technological progress and the information provided by the accounting management reports has to be presented to decision-makers in a timely manner. The modern costing methods addressed in this thesis are: Kaizen Costing, Target Costing, and Activity Based Costing (ABC).

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[17] Industria de componente auto – vedeta anului 2006, 29 Decembrie 2006, wall-street.ro, accesat la 1 martie 2010

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