A Manufacturing Cost Model for Computer‐integrated Manufacturing Systems

The product‐costing techniques developed for conventional job shops are unsuitable for use in computer‐integrated manufacturing systems(CIMS) and their continued use in the CIMS environment generates incorrect and misleading manufacturing costs. A new cost model particularly suited for CIMS that also satisfies all financial accounting requirements is described. The model has two components of manufacturing cost, direct material cost and transformation cost,instead of three in the conventional method, and uses actual machine usage to calculate manufacturing costs. To effect accurate allocation of the transformation cost, first to each machine and then to the product that uses the machine, intermediate pooling of costs and different allocation bases are used. A numerical example is presented to clarify the steps in the procedure.