IPO cost: the difference between the product cost aggregation method (batch method and step-by-step method).

Batch and step-by-step methods are two commonly used costing methods in the production process, and they differ significantly in several ways. Here's a closer look at the differences between the two methods:

First, the cost calculation object is different

• Batch method: The cost calculation object is the batch of the product, that is, the cost is calculated according to the batch of the product. This method is particularly suitable for enterprises that produce single pieces and small batches, such as manufacturing enterprises such as heavy machine tools, ships, precision instruments and special equipment. In these enterprises, production activities are often organized according to the orders of the ordering unit, so the batch method is also known as the order method.
• Step-by-step method: The costing object is the production step of the various products, as well as the product variety itself. It is suitable for continuous, large-volume, multi-step production of industrial enterprises, such as metallurgy, cement, textile, winemaking, bricks and tiles and other enterprises. From the input of raw materials to the completion of products, these enterprises go through several successive production steps, each of which produces semi-finished products with different degrees of completion.

Second, the cost calculation period is different

• Batch method: The cost calculation period is basically consistent with the production cycle of the product, but inconsistent with the accounting reporting period. This is because the batch method calculates costs based on the batch size of the product, and the production cycle of each batch may vary. Some batches may be commissioned and completed in the same month, while others may take months or even years to complete.
• Step-by-step method: The costing period is generally periodic, which is consistent with the accounting reporting period. This is because the step-by-step method calculates the cost in terms of production steps, which are continuous and cyclical, so the cost of the product can be calculated at regular intervals.

3. The distribution of production costs between the finished product and the finished product is different

• Batch method: There is no finished product when it is not completed, and there is no product in progress after completion, and the finished product and the product in progress will not coexist at the same time. As a result, the batch method generally does not require the allocation of production costs between the finished product and the product. However, if the lot size of the product is large and the purchaser requests that the product be delivered in installments, there may be a situation where the products in the batch are completed one after another across months, and it is necessary to use an appropriate method to allocate the production costs between the finished product and the product at the end of the month.
• Step-by-step approach: Since production is continuous, there will be a product in between the various production steps. Therefore, the step-by-step method needs to divide the production costs collected by each step and each product in the finished product (semi-finished product or finished product) and between the products according to the standard of approximate equivalent output and fixed consumption, and then calculate the cost of finished products.

Fourth, the scope of application is different

• Batch method: It is mainly suitable for enterprises with single pieces and small batch production, such as manufacturing enterprises such as heavy machine tools, ships, precision instruments and special equipment. In addition, it can be used for the trial production of new products, the repair of machinery and equipment, and the manufacture of tools, appliances, and molds to assist in production.
• Step-by-step method: suitable for a large number of multi-step production enterprises, such as metallurgy, textile, machinery manufacturing, etc. The production process of these enterprises is complex and requires multiple production steps to finally complete the product.

In summary, there are significant differences between the batch method and the step-by-step method in terms of the cost calculation object, the cost calculation period, the distribution of production expenses between the finished product and the finished product, and the scope of application. Enterprises should choose the appropriate cost calculation method according to their own production characteristics and management needs.

In practice, there are significant differences between the batch and step-by-step approaches in terms of product costing and management. Here's a breakdown of the differences between the two approaches in practice:

1. Differences in costing objects

• Batch method: The costing object is the lot of the product. This means that the costing is based on each batch of products, and each batch has its own independent costing process. It is suitable for enterprises with single piece and small batch production, such as heavy machine tools, ships, precision instruments and other manufacturing enterprises. The production activities of these enterprises are often organized according to customer orders, so each batch of products may have its own uniqueness and differences.
• Step-by-step method: The costing object is the production step of the various products as well as the product variety itself. This means that costing focuses not only on the final product, but also on the individual steps in the production process and semi-finished products. It is suitable for a large number of multi-step production enterprises, such as metallurgy, textile, machinery manufacturing, etc. The production process of these enterprises is complex and requires multiple production steps to finally complete the product.

2. Differences in the costing period

• Batch method: The cost calculation period is basically consistent with the production cycle of the product, but inconsistent with the accounting reporting period. This is because the batch method calculates costs based on the lot of the product, and the production cycle for each batch may vary. In practice, it is necessary to pay attention to the production progress and cost occurrence of each batch so that the cost calculation and carry-over can be carried out at the appropriate time.
• Step-by-step method: The costing period is generally periodic, which is consistent with the accounting reporting period. This is because the step-by-step method calculates costs in terms of production steps, which are continuous and cyclical. In practice, it is necessary to calculate the cost of each step and each product on a monthly or other regular interval, so as to reflect the cost changes in the production process in a timely manner.

3. Differences in the distribution of production costs

• Batch method: There is no finished product when it is not finished, and there is no product in progress after completion, so it is generally not necessary to allocate production costs between finished products and products. However, if the batch size of the product is large and the purchaser requires the delivery in batches, there may be a situation where the products in the batch are completed successively across months. In this case, it is necessary to use an appropriate method (such as the approximate yield method, the quota ratio method, etc.) to allocate the production cost between the finished product and the month-end product.
• Step-by-step approach: Since production is continuous, there will be a product in between the various production steps. Therefore, in practice, it is necessary to divide and distribute the production costs collected by each step and each product on a monthly basis according to the standards of the finished product (semi-finished product or finished product) and between the products according to the approximate equivalent output and fixed consumption.

Fourth, differences in internal control and management

• Batch method: Since the costing of each batch of products is relatively independent, internal control and management are mainly concerned with the production progress of each batch, the occurrence of costs, and the accuracy of cost calculation. A sound order tracking system and costing process need to be established to ensure that the cost of each batch of products can be accurately calculated and carried forward in a timely manner.
• Step-by-step approach: Since the production process is complex and involves multiple steps and semi-finished products, internal control and management need to be more detailed and comprehensive. It is necessary to establish a sound production process management and cost control system, including the monitoring of each production step, the formulation and implementation of cost budgets, and the analysis of cost differences.

To sum up, there are obvious differences between the batch method and the step-by-step method in practice. Enterprises should choose the appropriate cost calculation method according to their own production characteristics and management needs, and establish a sound internal control and management system to ensure the accuracy and timeliness of cost calculation.