Relevant Costing

Business owners and managers need and want accurate product cost information in order to make day-to-day decisions, including:

- Selling prices for the company's products,

- Whether to investment in equipment and processes to reduce product costs, and

- Whether to continue/discontinue offering certain products for sale.

All too often the cost information provided by the company's accounting staff can be confusing or misleading, causing the company to make incorrect decisions.  This may occur despite the fact that the accountant's are using "sound" accounting methods and practices, accepted by the company's independent accountants.

How can accurate information lead to poor decisions?  This occurs from the failure to consider the overall impact on the profitability of the business arising from the effects of the decisions outlined above.  Traditionally accountants will provide cost information in terms of material, labor and overhead costs per unit as provided by their standard cost system which are hypothetical costs assuming no change in production volume, effect of the decision on other products' profitability, capacity constraints, or any of many other factors affecting the organization as a whole.

These issues