I was in the midst of fierce battles between production, operations and finance over manufacturing costing of Etios for nearly a year and no one seemed to be close to winning. Everyone was right in their own perspective yet none quite right enough. Finance allocated overall costs across different models irrespective of usage. Production did costing based on planning standards. Operations actually measured the resources being consumed by Etios day in and day out. Naturally, the operations way of doing seems somewhat convincing to a common man but if you looked at it from a company finance perspective, what will they do with the difference of this cost based on consumption and allocated cost?
I had a revelation in today’s managerial accounting class. You do the costing based on operations method that will help determine accurate profit margins, visualise the ideal (unallocated) costs and then load it on top. The point being, everyone recognises that there is idle or unallocated costs that can actually trigger ideas for better utilisation of company’s resources – either through reduction of existing resources or addition of products that could be turned around with spare resources. This is the essence of managerial accounting – to be able to look at numbers from a distance and see how it can help determine company strategy. I wish there was some way for me to have another go at the costing of Etios to set things right!