Financial Statements

Costing Methods Applied By Ford Company

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Production costing methods indicates the products that can be directly applied to the products. This is essential because even though the cost has been experienced, i.e., the money has already been spent. Where the inventory is unsold for an extended period at the end of the year, the company defers acknowledging the costs as expenses.

The First-In, First out (FIFO) production costing method as used by Ford Company computes the unit costs taking into account the cost experienced during the present period as well as equivalent units of the work performed in the present period. The function of the product costing method is to assign the cost of commencing work-in-process inventory to the first completed units. The Last in, First Out (LIFO) implies that the value of the most recent purchases is taken and then matched with the current sale. An advantage of LIFO as used by Ford Company is that it did the best job in revealing certain profit margins that a company gets through its sales of products and provision of its services (Jones, 2015).

Considering the production costing methods used by Ford Company that is LIFO and FIFO method both will give different profit measurements in a given period. It very appropriate that Ford Company is employing FIFO production costing method as it recommended that manufacturing firms that have good coming from one end and going to another are best fitted with method (Palewatta, & Perrera, 2017).

FIFO impacts data analysis as it assumes that every time the units are taken from the store is then handed out from the oldest accessible lot at first and during the next lot if wanted.

Reference

Jones, P. (2015). Budgeting, costing and estimating for the injection molding industry. Shrewsbury: I Smithers.

Palewatta, I., & Perrera, H. (2017). Inventory Optimization using ERP to reduce final product lead time, Inventory value an inbound logistics cost for MTO, FMCG Company. International Journal of Multidisciplinary Studies, 3(2), 53. http://dx.doi.org/10.4038/ijms.v3i2.7