Precision Costing of Manufacturing Operations

There are several “generally accepted accounting practices” which can be applied in the development of manufacturing costs. However, most of these techniques are developments of, or modifications of, “distribution accounting” methods. As a result, although they are legal and ethical from a tax and financial point of view, they do not offer a basis for “precision” in cost estimating, cost control or inventory valuation. The “total absorption standard cost” technique provides a basis for “precision costing” at all stages of manufacture and distribution. This technique also simplifies the application of computer technology to cost extimating, performance simulation, and automated design engineering. The heart of this precision costing concept lies in the application of a matrix type “code language,” the development of a “landed cost of sales” approach to inventory valuation, and a “building block” element cost technique. As a by-product of this technique, the system provides adequate detail for product, job order, departmental, operation, and enterprise costing on either a “standard” or “direct cost” basis.