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Valid Decisions in a Production Factory

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"full costing as an approach where organizations goods and services are priced in other to reflect the true cost which is expected to include social and environmental cost".

Question:

How can a production factory make valid decisions given the differences in costing? After all, we must have accurate cost data in order to identify which products are profitable.

An interesting look at this can be found at:

http://www.business.aau.dk/~hojen/index-filer/4scm/CostAccountingDistortsProductCosts.pdf

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Solution Summary

The expert examines valid decisions in a production factory.

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FULL COSTING

It is very important for manufacturers to be able to compute the full and accurate cost of production of goods and services so that they can be able to effectively and competitively price their products. This is what will give them the upper hand in the market and enable them win over the much needed customers and hit the targets. There are various methods of calculating cost and spreading it onto the products so that a given figure can be arrived at and marked up to provide the manufacturers with the recommended retail prices for their goods. It is this delicate balance that will determine the strength or failure of a company.
Accounting scholars and economists have been involved in the hard debate trying to agree on which is the best and the most appropriate method of calculating and fairly spreading cost on products and giving a reasonable value to the customers. A good evaluation of this figure makes sure a manager is better equipped in making winning decisions on, product design, new product introduction into the market, and the amount of effort to be put in marketing a given product or product line. These can also be used to decide whether or not to keep producing a product based on the margins that the company seems to be enjoying from dealing with the given item. The biggest factor of the cost system's design is determined by the information needs of the organization. The ...

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