Production metrics for efficient cost management

What we can contribute in relation to metrics is that they are a quantifiable and well-defined measure used in the production sector to evaluate performance over time, and where companies in the production sector use them for efficient cost management.

While the costs of direct materials and direct labor are accumulated in the cost sheet at actual value, indirect costs are also accumulated in the cost sheet using arbitrary mechanisms that involve the predetermination of a rate of application of the same.

The difference between the indirect costs actually incurred in the period and the indirect costs applied to the work order cost sheets is known as variations. These variations are not taken to the specific work orders, but basically to the cost of sales.

In relation to indirect costs, they are adjusted to the actual cost for purposes of preparation of financial statements, the unit cost is obtained by dividing the total cost of each work order by the number of finished units, and is applicable to companies whose production is not standardized.

From the above comparison it can be concluded that one system is not better than another, but responds to different operational characteristics. Some companies manage production orders and, at the same time, processes.