Accounting Best Practices, Fifth Edition

Total Impact of Best Practices on the Costing Function

This section describes the impact of all the best practices described in this chapter on the costing function. They address three main areas within the costing function, as noted in Exhibit 9.3. Auditing various sources of costing information will improve its accuracy. Eliminating old costing reports and replacing them with ones that focus on scrap levels, obsolescence, cost trends, and direct costs will have a major impact on the quality of information presented to the rest of the organization. Finally, implementing activity-based costing and target costing systems will drastically improve the types of cost information that management can use to make costing-related decisions.

Exhibit 9.3. Impact of Best Practices on the Costing Function

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Of all these best practices, it is difficult to pick out one or two that must be implemented before all others, due to their impact, becauset these best practices are highly interrelated. For example, an activity-based costing system provides valuable new information, but no one will see it if the new data is shoehorned into the same old cost accounting reports. Similarly, new costing reports are vital but will still contain inaccurate information unless the underlying data is improved through regular audits. Thus, it is necessary to install these best practices as a ...