Accounting Best Practices, Fifth Edition

Summary

This chapter described a number of best practices that impact inventory costing. Some involve auditing those underlying documents with the greatest impact on profitability, such as bills of material and labor routings. Others alter or replace existing cost reports, resulting in better visibility of costing problems. Finally, target costing and activity-based costing systems can be installed, giving much control over costs (in the first case) and vastly more accurate information about costs (in the latter case). These are generally easy implementations, with the exception of the two new costing systems, but implementing the reports will require the approval and acceptance of those members of management who read them. If properly implemented, all of these changes will result in much better knowledge of costs, which, if acted upon, can make the difference between profits and losses.