Understanding your product costs are essential for generating profit for your business. A Harvard Business Review article clearly articulates the importance of accurately allocating production expenses to product lines.
It’s Time to Redesign Your System If You Notice That…
…profit margins are hard to explain. Managers should be able to give simple explanations of profit margins: “We have the best production technologies”; “We have lower production volumes”; “Nobody else makes that product”; or “We set the standard and make a premium for doing so.” In one company, the production manager was under constant pressure to make a certain new product more cheaply. He couldn’t explain the high costs. He was confident that he was doing a good job and believed the product should be competitive. Years later a revised cost system showed that because the product used more direct labor than any other, it was being charged too much overhead. It was in fact the company’s most profitable line. Unfortunately, by then, competitors had introduced similar products and the opportunity was lost.
Cooper, R. (1989). You Need a New Cost System When…. Harvard Business Review.
Work with our cost analysts one-on-one to properly track and allocate product costs in your manufacturing process. We provide an array of customizable solutions for analyzing your product manufacturing.
- Job Cost Analysis
- Process Cost Analysis
- Activity Based Analysis
- Hybrid Cost Analysis
- Custom Cost Analysis