Reading 5 - managers should understand as they attempt to...

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Reading 5.1, Robin Cooper¶s Does Your Company Need a New Cost System, poses a critical question for managers: ³Do I really know what my products cost?´ Answering this question, willallow managers to determine whether their costing system is reporting accurate product costs. In order to address this question. Cooper suggests that managers look for symptoms that often point to poor system design. For example, one symptom of a poor system occurs when a firm’s customers completely ignore price increases, even though the firms manufacturing costs haven¶t changed. In this instance, the cost system may be under estimating product costs, and, thus, the associated markup is still below market. Cooper outlines a number o f other design flaws that
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Unformatted text preview: managers should understand as they attempt to develop more accurate systems. Consistent with Robin Cooper¶s article, Norm Raffish argues in How Much Does That Product Really Cost (Reading 5.2) that the business world has changed so much that traditional cost accounting is no longer applicable. For one thing, the relative proportions of what go into product costs have changed significantly with direct labor content dropping to between 5 an 15%, materials content falling between 45% and 55%, and overhead soaring to between 30% and 50%. Raffish builds the case for activity-based costing as a much more accurate method for determining (among other thins) more accurate product costs....
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