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In: Accounting

A manager says "According to AASB 102 inventories, product costs used for inventory valuation or cost...

A manager says "According to AASB 102 inventories, product costs used for inventory valuation or cost reimbursement need to be based on current costs, which are objective and verifiable.

Therefore, product costs are not useful for and relevant to our decision making process for the future operational plan. Especially our business is small.We don't need to implement a comprehensive product costing system.

Agree or disagree with explanations in detail.

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Expert Solution

Ans: Earlier, in the traditional costing systems, when the cost is charged on the basis of drivers like in ABC Costing approach, costing is done on an activity-based approach. Where the total cost is allocated on the basis of activities performed. However, this was a traditional approach in which finding operating effectiveness was difficult.

However, nowadays, a new system can say Product-wise costing is done in businesses where every cost is allocated directly to the cost charged to manufacturing a particular product. A product is charged different costs like material, labor, salaries to those making specifically only that product, other overheads, etc. So, it is beneficial to find out the effectiveness and profitability of each product even in small businesses. Like, we can better know that from a variety of products which product is having good margin with least cost and which is having high costs with low margins. Also, it will help to do Pareto Analysis.

Therefore, I have disagreed with the above statement that product costs are not useful for and relevant to our decision-making process for the future operational plan. Especially when our business is small and we don't need to implement a comprehensive product costing system..

ekkarill92 answered 1 year ago
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