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Improving Your Product Costing
Product costing is difficult, but it becomes significantly more so when you have a wide variety of products and a wide range of volumes within those product groups. Major reasons for poor product costing include the following:
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Many costs are allocated inaccurately.
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Overhead allocations are based on volumes or direct labor.
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Direct and indirect labor costs are usually inaccurate.
Allocations (flexibility in determining the distribution of costs) generally cause the greatest inaccuracy in product costing, and inaccurate product costing leads to poor data on which to base decisions. Low-volume businesses have a higher percentage of their costs in overhead (an allocated cost) than do high-volume businesses, ...
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