Costing System at an Automobile Manufacturing Plant Facility

XYZ ltd. has a large assembling plant where it assembles three different models of luxury cars. Almost all the
components of car are procured from outside and are assembled on two assembly lines. Both the assembly lines
are capable of handling all the three type of models manufactured by the company. The production flow is as
following:

1. Chassis manufacturing including fuel tanks

2. Primary Paint
3. Fitting of wiring system
4. Fitting of engines, gear assembly and other mechanical assembly like silencer, convertor, etc.
5. Fitting of axles, wheels and tires
6. Fitting of steering systems
7. Fitting of Seats
8. Fitting of Wind Shields
9. Fitting of Electronic Equipment such as horns, wiper system, lighting, etc.
10. Final finishing and installing stereo system and dashboard controls

The production manager schedules the production run for each of the model based upon inputs from the sales and
marketing department. Each car is allotted a Job No. and a job card is opened which is tagged with each car
during the complete assembling process. Every time a material is required to be fitted in the car, the foreman
punches the requirement in an ERP system, quoting the job no. and the store ensures that material is supplied by
the time it needs fitting.

Each set of workers specialize in one of the assembling processes. For e.g. tyre fitting group will fit tyre for each
car moving on the assembly line. As soon as car reaches to a particular group, they enter the in-time of car,
number of workers who did the job and out-time of the car. Workers on the assembly line are paid wages on
time-rate basis whereas all other workers are paid on wages fixed monthly basis. Salaried workers receive fixed
monthly emoluments with performance incentives.

The factory also houses following departments which provide support to the assembly line or are essential for
operations:

a. Janitorial Department: Provides cleaning services to the whole factory

b. Quality Control Department: It checks each and every car coming out of production process and enter the
time taken to check quality on each job card. The quality check process involves use of equipment, material
and skilled labour.
c. Maintenance Department: Provides emergency and scheduled maintenance services to the assembly line. It is
also responsible for setting up the assembly line before starting of each production run.
d. R&D Department: Strives for continuous improvements and innovations for maximizing product value.
e. Engineering Department: Responsible for doing necessary tweaks to assembly line according to the
requirements of R&D department
f. Logistics Department: Looks after arranging storage for inventory and transportation related services
g. Accounting & Personnel Department: Looks after compiling appropriate records and maintaining payroll for
workers and employees. Also looks after regulatory compliances.

Apart from the above departments at factory site, there is a sales and administration department which looks after
the sales effort and corporate level matters of the company.

The company receives a common power bill and each assembly line has a sub meter installed. The company
follows a very employee friendly policies and has been able to win loyalty of its employees. On some occasions,
the company requests for overtime from employees without any payment in lieu.