Control the cost of production order

First: Manufacturing activity,

which is one of the large and complex activities due to the need to control the elements of production cost to reduce waste and extravagance in them to achieve a higher quality equation for the product and the lowest cost of production, which will be reflected on the profitability of the company and thus the continuity of the company in competition and preserve the rights of partners and shareholders

Among the most important weaknesses faced by the external auditor in such activities:

In manufacturing activities, the most important document is the production order for being the first responsible in controlling the production process and calculating the cost of complete production. The objective of the control of the production order is to identify 3 basic cost elements :-

• Cost of raw materials

• Cost of wages (cost of the human element

• Indirect industrial costs

We will review the most important weaknesses in the control of each of the indicated cost elements

1) Control of the cost of raw materials

• Lack of control systems on the components of production orders from the amount of raw materials needed by each item.

• The lack of control systems on the cost of production orders from the cost of raw materials and the extent to which the change in the purchase prices of raw materials affects the cost of the finished product and the weighted average cost is calculated properly

• The absence of effective control systems that are responsible for alerting the limit of re-ordering of production raw materials, which leads to the possibility of stopping the movement of production without warning.

Are there any challenges facing us in calculating the cost of wages in factories?

2)Control of the cost of wages

• Lack of control systems on the cost of the human element (wages) and how to distribute them to production orders.

• There is no control to charge the cost of wages according to the number of hours of operation of each finished product - which may vary from one variety to another

The topic of indirect industrial costs accountants talk a lot and we as chairmen of boards of directors and decision makers don't see where the problem is this is a simple topic

3)Control of indirect industrial cost

• The absence of an appropriate system that is responsible for charging indirect industrial costs on production orders according to well-studied loading rates and measured periodically to reach the highest degree of accuracy in calculating the value of the cost of complete production, which helps in developing a sound pricing policy that achieves reasonable profitability for the company and avoids achieving any losses

After having a system with large sums, will we estimate the costs?

• The absence of a control system that would control the cost of each bill of sale separately and accurately in order to track the impact of changes in cost on the selling prices of each bill of sale separately .