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BOS
Copyright© 1998 Bain & Company, Inc.
Cost Accounting
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Historically, only 20% of manufacturing costs were “shared” across product lines. Today,
typically 50% of costs are “shared” across products. Shared costs might include rent,
freight, and administrative costs.
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For simplicity, accounting tracks costs by function (e.g., materials, salaries, benefits) rather
than by the activity devoted to product lines (e.g., maintenance of product A, freight for
product B)
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For costs that are not easily assigned to individual product lines, companies normally select
the most convenient way to assign them, not necessarily the best way
–
for example, companies tend to allocate rent costs based on something that is easy to
measure, such as direct labor dollars for each product line. A better allocation method,
however, might be the actual space resource demands of each product line
Most companies lack accurate cost data by product.
Why Costs Are Often Not Allocated Correctly
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