Production Cost Methods

Production Cost Methods

Production cost methods are used by companies to give the value of the manufactured products. The methods include job, process and direct costing among others. Each method is applied to separate decision environments and production department. The paper will discuss production cost methods used by the Ford Motor Company.

Production Costing Methods Used in Ford Motor Company

            Ford has been reported to use activity-based costing (ABC) method. The method involves allocating prices to goods and services. It assists firms in making informed decisions, reduces cost across the firm, delivers revenue growth and streamlines process. The method benefits organizations by allowing them to have close look at their processes and change where necessary (Jurek et al., 2012). In this case, they can eliminate processes that add no value or decide to improve them. Ford Motor Company applied ABC to monitor the value of their processes. The approach assisted them to analyze each step in every process and ensure it is adding value before looking for alternative processes. As a result, it has enabled Ford Motor Company to remain competitive in the automobile industry.

Method Appropriateness

            I feel that ABC method is appropriate in determining the value of each process. It enables major firms in evaluating the cost of each process. Therefore, they do not waste money on processes that are not productive. Additionally, it guides them on most profitable processes. Therefore, they are able to improve and major in that process leading to more profit and remain competitive.

Impact of Data Analysis

            The method has been shown to help in indicating different cost and resources that are invested. Therefore, an organization is able to calculate whether a process is profitable or it is bringing loss. If a process after evaluation and calculation does not bring any benefit, it is eliminated. Additionally, use of ABC method is applied mostly by firms with overhead costs. Such firms get better results over a prolonged period since they will be able to get better data.

Reference

Jurek, P., Bras, B., Guldberg, T., D'Arcy, J., Oh, S. C., & Biller, S. (2012, July). Activity-based

costing applied to automotive manufacturing. In Power and Energy Society General Meeting, 2012 IEEE (pp. 1-7). IEEE.