Accounting_Ver03. _ “Why Costing Logic Differs Between One-off Projects and Mass Production: Labor-Hour Based vs. Machine-Hour Based Costing”

shigenoritanaka3
3月11日
読了時間: 3分

　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　Mar 11, 2026

Hello everyone.

Today's topic is how the logic of cost accounting changes depending on the business model and production style.

■ Costing for One-off Projects (Installation, Construction, Service Work)

Industrial equipment installation, construction projects, and service work are all one-off in nature - each project is unique. In such cases, job-order costing is the appropriate method.

> Costs directly attributable to the project

Direct material costs
Direct subcontracting costs
Direct Goods Transportation costs
Direct Travel expenses (hotel, transportation)
Other direct expenses

All of these are recorded as direct project costs.

> How should we treat labor (“man-hours”)?

The answer is simple.

“Labor Hourly Rate” = Total Manufacturing Cost (excluding direct costs)

/ Total Direct Working Hours per Year

“Project Labor Cost” = “Labor Hourly Rate” × Actual Labor Hours
Project Total Cost = Project Direct Cost + “Project Labor Cost”

As explained in Blog Ver01 “Manufacturing Cost,” we use a standard labor rate during the fiscal period and replace it with the actual labor rate calculated by accounting at year-end.

One-off projects also tend to generate additional costs, and when a one-year warranty is provided, a provision for warranty costs should also be recorded.

■ Costing for Mass Production (Automated Lines, Foundry, Machining)

For mass production, the costing logic changes significantly.

When automated machines are used, the primary value creator is not people but machines. Human labor mainly supports machine operation and is therefore treated as indirect labor.

> Example: A batch that produces 1,000 units in 2 hours

Direct material cost
Direct subcontracting cost

These direct batch costs are treated the same as in one-off projects.

> How should labor cost be treated in mass production?

In mass production, we calculate a machine-hour rate:

Machine Hourly Rate = Total Manufacturing Cost (excluding direct costs)

/ Total Machine Operating Hours per Year

Batch Labor Cost = Machine Hourly Rate

× Machine Operating Hours for the Batch

Batch Total Cost = Batch Direct Cost + Batch Labor Cost

During the fiscal period, we use a standard machine-hour rate, and at year-end we replace it with the actual machine-hour rate.

> Which machine hours should be used in sand casting?

The answer is clear:

Use the operating hours of the core value-creating machine—the pouring machine.

In sand casting, the actual creation of the product occurs when 1,400°C molten metal is poured into the mold. This is the true bottleneck and the center of value creation.

> Batch total cost and unit cost

Batch Total Cost = Batch Direct Cost + (Pouring Machine Hourly Rate × Pouring Machine Operating Hours for the Batch (e.g., 2 hours))

Unit Cost = Batch Total Cost / Number of Units (1,000 units)

■ A Foundry-Specific Issue: Theoretical Production > Actual Good Units

In foundries, the theoretical production quantity (cavities × number of pours) is often higher than the actual number of good units produced.

Main reasons include:

Lack of pouring
Other defective castings excluded from good units

Therefore, to calculate accurate unit cost, we must use the actual number of good units that can be shipped to the customer.

■ Summary

Project/ Product Cost accounting must reflect the true nature of the production process. The “main actor” of cost—labor or machine—changes depending on the business model.

Accurate costing leads directly to: