General Motors Costing Systems
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General Motors Costing Systems
Manufacturing cost accounting determines the cost of direct and indirect labor and overheads. The process helps to understand the cost involved in making manufactured products. In the manufacturing firms, a system of cost accounting consists of cost accounts incorporated in a firm’s general ledger (Garrison et al., 2010). The process and job order costing are the main systems of cost accounting. Product cost is assigned to a process or a department for a specified time in process costing. In the system of job costing, the cost of a product is assigned to every rendered job or costs are assigned to a batch of goods. It is essential that each individual job or good’s batch is separately identified at all times. Therefore, a job order costing is better suited to a specific special order manufacturing, such as customized products. However, process costing is suitable for large volumes of standardized items manufactured in a continuous process (Horngren, 1995). However, some firms can use both the job and process costing methods for standardized and custom made products.
The selected company is General Motors (GM), an American automobile manufacturer of vehicles and vehicle parts. The company trades in New York Securities Exchange, with a stock price of US$25 as of 1st June 2020. General Motors uses both process and job costing methods. The company uses job costing for custom- made cars, while process costing is used for standard model vehicles. Given that standardized vehicles are manufactured in continuous flows in production and assembly lines, the cost costing process is an appropriate method for calculating the cost of labor and overheads. However, GM uses a job-order costing method for special order customized vehicles to determine labor and overhead cost. These vehicles are tailor-made to the specific needs of customers rather than standard model cars. The critical steps in the job costing system include the accumulation of costs incurred in the manufacturing process and assigning them to work done.
Conclusion
Manufacturing cost accounting is used to determine the cost of direct and indirect labor and overheads. General Motors Company uses both job order and process costing method to determine overhead and labor costs. This is because it makes both standardized car models as well as customized vehicles for their clients. Ob order costing is applied to calculating the product cost for customized vehicles, while process costing is used in calculating product cost for the standardized cars.
References
Horngren, C. T. (1995). Management accounting: this century and beyond. Management Accounting Research, 6(3), 281-286.
Garrison, R. H., Noreen, E. W., Brewer, P. C., & McGowan, A. (2010). Managerial accounting. Issues in Accounting Education, 25(4), 792-793.