Car Manufacturing and Costing Systems Essay Example | Topics and Well Written Essays - 750 words

Car Manufacturing and Costing Systems - Essay Example Meanwhile, by 1939, the UK car manufacturing Industries have reached to the extent where they seconded the United State worldwide in terms of manufacturing car, as there were 20 Independent car manufacturing companies based in UK. Additionally, according to Stephen King (2005) that "BEFORE THE Second World War, there were hundreds of UK car companies. Had you wanted to buy a car, you could have opted, in the 1930s, for an elegant Alvis. Going back a bit further, you might have preferred the rather underrated, yet classy, Albion. Now, with the administrators called in to sort out MG Rover, it looks increasingly likely that you will no longer be able to 'Buy British' at all unless you're heading for the niche world of Morgan or for self-employment as a taxi driver". The costing system that was used in most manufacturing companies in the 1930s was the volume based costing system. This therefore implies that this costing system must have been employed in the car manufacturing process in the United Kingdom during this period. A volume-based costing system is a costing system that assigns overheads to products based on the output level achieved. (Blocher et al, 2005). Overhead or indirect costs are arbitrarily assigned to products based on either labour or machine hours rather than based on the product's demand for activities and thus resources. (Blocher et al). A vA volume based costing system allocates costs to products using arbitrary methods such as direct labour hours. These systems have proven to be appropriate when manufacturing systems used to be labour intensive, when labour used to be the principal value-adding activity in the raw material conversion process. (Cooper and Kaplan, 1992). However, with the advent of sophisticated technological developments and automation of manufacturing processes, direct labour is no longer directly working in the conversion of materials to products. Instead labour is simply engaged in setting up machines and supervising production activities (Kaplan and Cooper, 1992). Under the volume based costing system products that are manufactured in low quantities tend to incur more costs than those that are produced in large batches. The costs incurred per unit on these low-volume products are usually higher than that for the high-volume products. (Kaplan and Cooper, 1992). Therefore, when a volume based costing system is used to allocate overhead costs to products both low- and high-volume products are allocated equal amounts of costs. (Kaplan and Cooper, 1992). Activity based costing (ABC) a cost accounting system that recognizes the fact that costs are incurred by each activity that takes place within the organization and that products (or customers) should bear costs in proportion to their demand for activities (Owe and Law, 1999) is the costing system that was used in the UK car manufacturing industry in the year 2000. This is so because car manufacturing in the year 2000 became computerised and the role of labour in manufacturing was mainly supervisory. Apportioning overheads using labour or machine hours while appropriate in the 1930s could not be appropriate in 2000. ABC was proposed by Professor Johnson