MicroSave Briefing Note # 16: Product Costing in Practice - The Experience of MicroSave
Cracknell, D. & Sempangi, H.
Publication Date: 2002
Published by: MicroSave
Document Type: Paper
The what and why of product costing
Based on MicroSave's work with its action research partners, this paper analyzes methods of product costing and the related benefits. The paper reveals that product costing interacts strategically with a huge and diverse range of business areas. These include pricing, efficiency, outreach, design of incentive schemes, and the identification of the most suitable product mix, marketing, customer service, staffing patterns, profit centre accounting and budgeting.
The paper further makes a comparison between two available methods of costing:
- Allocation based costing, which is simple and quick,
- Activity-Based Costing (ABC), which is an in-depth approach.
The paper suggests that an institution may start with Allocation based costing and graduate to ABC.
In conclusion, the paper summarizes the key lessons learnt about the costing process:
- Success of a costing exercise may depend on availability of resources, prior preparation for costing exercise and capability and commitment of the management and staff.
- Costing can be institutionalized through process repetition, strategic use of results and additional investigations.
- Information for new product development as provided by product costing should be reviewed on a regular basis.
- Availability of sound information systems make introduction of product costing easier.
- Additional targeted investigation adds value to product costing exercises.
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