Cost Accounting

REACTION PAPER

“When we look at the financial statements of companies, things like labour and utilities are included in cost of goods sold and inventory. This was a good assumption in the industrial revolution, where these were truly variable costs. Now manufacturing is more dependent on machine uptime and speed than the number of people working.”

We agree that most manufacturing companies use more equipment and are dependent on machine uptime and speed nowadays. However, although we have moved on from the Industrial Revolution, manufacturing companies still consider labor as one of their primary elements in calculating the cost of goods sold. Sony, Panasonic, Toyota, Kia, Mattel, Nike, and Ford are just one of the many companies that manufacture their products in developing countries like Indonesia, Vietnam, Philippines and even a developed country like China. Why? Because the labor cost in these countries are lower than their owns'. There are things that machines cannot do like qualtiy control. Isnt quality assurance part of the manufacturing process?

A cousin of mine works in an arm of an integrate chip manufacturing factory and their sole their purpose is to check if there are scratches on the chips. They examine the sides and corners of integrated chips using vaccumed sticks and high-powered microscopes. The whole process depends on labor. Therefore, even though machines have proven to be efficient in producing products, it is still up the labor to keep the whole manufacturing process flowing. The responsibilities of labor may have changed, but not their importance.

Cost accounting may be centuries old, but like other concepts, it didn’t stay stagnant. It evolved and will continue to evolve depending on the climate of production or manufacturing and the technology that the future will bring.