CAT / FIA FBT Syllabus C. Accounting And Reporting Systems, Controls - Financial considerations in Production - Notes 2 / 3
The production department plans and oversees the production of goods
It liaises with the accounting department as follows:
| cost measurement, allocation, absorption | the production department measures quantitiesof materials and time used; the management accountant gives a monetary value to them. costs are then allocated and absorbed to calculate production costs based on advice given by the production department. |
| budgeting | the production department will decide how many items of what type are to be produced. the cost of producing these will be determined by the accounting and production departments together, and incorporated into the overall budget. |
| cost vs quality | the production and accounting departments will discuss the features that can be included in products and the raw materials that should be used. they should agree which better quality materials and features justify the extra cost, and discuss how to maximise quality and profit. |
| inventory | the production department will liaise with the inventory section to ensure that there are sufficient raw materials in stock for the production that is planned. |