A manufacturing company will use different accounting concepts than a company that is not engaged in creating material goods. For example, an air conditioning company will use different concepts than, say, a social media company that isn’t in the business of producing physical items. An air conditioning company will have basic cost components like factory overhead, direct labor, and direct materials. They must also account for the cost of their inventory.
To account for the cost of inventory, a manufacturer should use direct cost assignment to figure out the price of their goods.
As for the general cost of running and maintaining a professional factory—that will be recorded under overhead cost assignment.
Another crucial part of accounting in the manufacturing fields involves an inventory system. Most manufacturers should adopt a perpetual inventory system to ensure that they have an accurate account of the goods they have, the goods they’ve sold, the good that are traveling from one location to another, and the goods that have been discarded.
Someone might argue that an effective perpetual inventory system is the most important concept because without accurate information manufacturers will likely find it hard to make wises choices regarding their stock.
If a manufacturer were to travel back in time to 1980, they could find themselves in a recession and cutting costs. If a manufacturer wanted to cut costs when it came to the condition of the factory, their most important concept might be overhead cost assignment. Another manufacturer might be more concerned with inventory and focus on direct cost assignment.