IPO cost: The method of product cost aggregation

The product cost collection method is mainly determined according to the production type, product characteristics and management needs of the enterprise. Here are a few common ways to collect product costs:

First, the basic cost collection method

1. Definition of variety method: a method of collecting production expenses and calculating product costs with product varieties as the cost calculation object.

Features: There is no need to calculate the cost by batch, nor does it need to calculate the cost of semi-finished products by steps, and the cost calculation method is relatively simple.

Scope of application: It is mainly suitable for enterprises with large-scale single-step production, or small enterprises that belong to multi-step production but do not require the calculation of the cost of semi-finished products.

Process: Generally, the cost of the product is calculated on a monthly basis, and there is no need to allocate the production cost between the finished product and the semi-finished product.

2. Definition of batch method: also known as the order method, it is a method to collect production expenses and calculate product costs by using the batch or order of the product as the cost calculation object.

Features: The costing period is not fixed, and a production cycle (the entire period from production to completion) is generally used as the costing period to calculate the product cost regularly.

Scope of application: It is mainly suitable for multi-step production of single pieces and small batches.

Process: Since there is no finished product when it is not finished, and there is no product in progress after completion, the finished product and the product in progress will not coexist at the same time, so there is no need to allocate the production cost between the finished product and the finished product.

3. Definition of step-by-step method: a method for collecting production costs and calculating product costs according to the production steps of products.

Features: Suitable for multi-step production in large quantities or large quantities. Due to the large quantity of production, there are often both finished products and unfinished products and semi-finished products at a certain time, so the cost is generally calculated on a monthly basis, and the production costs should be allocated between finished products and semi-finished products.

Scope of application: multi-step production in large quantities or large quantities.

2. Other cost collection methods

In addition to the above basic cost aggregation methods, there are some specific cost aggregation methods, such as:

1. Fixed cost valuation

Features: The cost of products in each month of the year is calculated according to the cost of products at the beginning of the year, which is fixed. The production expenses incurred each month are still the cost of the finished product for that month. At the end of the year, the cost of products at the end of the year is redetermined according to the number of inventories, which is used as the basis for pricing products in the following year.

Scope of application: For businesses that do not change much between months of the product.

1. Raw material cost deduction method

Features: At the end of the period, only the material cost should be calculated in the product, and all other costs are borne by the finished products in the current period.

Scope of application: It is mainly applicable to enterprises whose material costs account for a considerable proportion of the total product costs and are invested at one time at the start of construction, and the number of products is large and the quantity changes are large at the end of each month, such as winemaking, papermaking, textile and other enterprises.

1. The cost of the product is based on the cost of the finished product

Features: Calculate and allocate production costs as if the product was completed.

Scope of application: It is applicable to products at the end of the month when the product is nearing completion, or the product has been processed but has not yet been accepted or packaged into storage.

3. Auxiliary methods

1. taxonomy

The classification method of product cost calculation, also known as the category method, is a cost calculation method used in order to simplify the calculation work when there are many varieties and specifications of products, but they can be classified according to certain standards. Specifically, the classification method first collects production costs according to product categories, calculates the total cost of various types of finished products, and then calculates the costs of various varieties and specifications of products in the category according to certain distribution standards. Here's a closer look at the taxonomy for product costing:

Definitions and characteristics

• Definition: The taxonomy takes the product category as the cost calculation object, and sets up a product cost sub-account according to the product category, collects production expenses, and calculates the cost of various products.
• Peculiarity:
• Applicability: It is suitable for the situation that there are many varieties and specifications of enterprise products, but they can be classified according to certain standards.
• Purpose: The main purpose is to simplify the costing process.
• Cost collection: Collect production expenses according to the product category and calculate the product cost.
• Allocation method: For the cost of products of different specifications within the class, a certain method can be used to allocate and determine.

Scope of application

The taxonomy is applicable to various types of enterprises, as long as the products have a wide variety of varieties and specifications, and can be classified according to certain standards, the taxonomy can be used to calculate the cost. For example, pig iron, ingots and steel of various grades and specifications produced by iron and steel enterprises, various radio components of different categories and specifications produced by radio component enterprises, and various light bulbs of different categories and wattages produced by light bulb enterprises can be calculated by classification method.

Advantages and disadvantages and application conditions

• Advantage: Simplified costing: Reduced costing effort due to the aggregation of expenses by product category. Classification to grasp the level of product cost: in the case of a variety of product varieties and specifications, the level of product cost can be classified and mastered.
• Disadvantages: Hypothetical: Since the cost of various products within the same type of product is calculated according to a certain proportion, the calculation results have a certain assumption. Selection of allocation criteria: The selection of allocation criteria directly affects the accuracy of cost calculation.
• Application conditions: There are many varieties and specifications of products, and they can be classified according to certain standards. It is necessary to select a reasonable allocation standard to ensure the accuracy of cost calculation.

Practical application

In practical applications, taxonomy is often used in combination with cost calculation methods such as variety method, step-by-step method, and batch method. For example, in a multi-step production enterprise, it might be possible to use a step-by-step approach to calculate the cost of each step by production step, and then a taxonomy to calculate the cost of each type of product by product category. This not only satisfies the detailed grasp of the cost of the production process, but also simplifies the calculation of the cost of the final product.

1. Quota method

In enterprises with a good foundation for quota management, in order to assess the results of operation and management, reflect and adjust the cost differences in the production process in a timely manner, the quota method is also used to calculate the product cost. The quota method controls the occurrence of costs and calculates the actual cost of products by formulating and implementing various quotas, such as material consumption quotas, working hour quotas, etc.

Fourth, internal control and cost collection

Internal controls play a crucial role in the cost collection process. Key aspects of internal control include:

1. Position setting and division of responsibilities: Reasonably set up posts, clarify the responsibilities and authority of each post, and ensure that incompatible positions are separated from each other.
2. Procurement and acceptance control: Establish a strict procurement and acceptance system to ensure that the purchased raw materials meet the quality standards and production requirements.
3. Production and cost accounting control: Strengthen the cost control of the production process to ensure the accuracy and compliance of production picking, working hour records, cost accounting and other links.
4. Inventory and inventory management: Establish a sound inventory and inventory management system to ensure the safety, integrity and accuracy of inventory.
5. Information system control: the use of modern information technology means to strengthen internal control, such as the use of ERP system and other integrated information systems for cost accounting and management.

In summary, there are various methods of product cost collection, and enterprises should choose the appropriate cost collection method according to their own production characteristics, product characteristics and management needs, and strengthen internal control to ensure the accuracy and compliance of cost information.