A study from McKinsey & Company says the cost of electric vehicle batteries has been steadily declining from $1,000 per kilowatt hour in 2010 to $227 per kilowatt hour in more recent years. As the cost of these batteries continues to fall, it remains to be seen if the corresponding decline in the manufacturers’ selling prices will lead to a substantial increase in the number of electric vehicles sold.
From a management accounting standpoint, electric vehicle manufacturers would view the cost of their batteries as a direct material cost, a product cost, and a variable cost. It would be a direct material cost because the cost of each battery can be conveniently traced to a specific vehicle. It would be a product cost because installing one battery in each vehicle is a necessary part of the manufacturing process. It would be a variable cost because the battery cost per vehicle is constant whereas the total cost of batteries increases as more units are produced.
Source: Jacky Wong, “EV-Battery Makers Face Price Crunch,” The Wall Street Journal, December 5, 2017, B13.
Source:
Garrison, R., Noreen, E., & Brewer, P. (2021. Managerial accounting (17th ed.). New York, NY: McGraw-Hill Education.
Directions
Initial Posting
Costs are unique and may be customizable to the organization or industry such as described above. Managerial accounting is concerned with providing information to managers within the organization about costs. Managers expect to know what is included in direct materials, direct labor, and manufacturing overhead. They also expect to know what constitutes product costs and variable costs. The costs of production are substantial and it is incumbent on managers to understand what constitutes their costs.
Choose a manufacturer of a product. Research the company’s costs policies and practices to identify what constitutes direct costs of materials, product costs, variable costs, fixed costs, manufacturing costs, non-manufacturing costs, etc. You may have to research multiple sites to find this information – even the company’s full annual report. Tell the ‘cost story’ of your company with use of graphics or other visualizations. Provide sufficient narrative to explain the story of costs at your company. Include graphics or visualizations to support explanation of cost terms (if available).
