Cost Accounting For Dummies, 2nd Edition

Chapter 20

Ten Common Costing Mistakes and How to Avoid Them

IN THIS CHAPTER

Allocating product costs more accurately

Understanding types of costs

Following up on variances

Planning when costs will be incurred

This chapter covers the most common mistakes related to costs. Reducing your costs can lead to a higher profit — without the need to raise your product price. Unfortunately, making costing mistakes can lead to lower profit (or losses). As an accountant, you can make a big impact on your company’s bottom line by addressing these mistakes.

Pricing a Product Incorrectly

Overhead is the most commonly mishandled cost. Overhead should be allocated based on an activity level (labor hours and machine hours, for example). If a business owner doesn’t understand cost accounting, the overhead costs may not be allocated at all, or too much or too little cost may be allocated to the product. As a result, the full product cost isn’t accurate, so the product price also isn’t set accurately.

Listing Fixed Costs As Variable Costs

Accountants must price a product to cover all costs and generate ...