Importance of Accurate Product Costing and Problems with Traditional Costing System

Management accounting

TABLE OF CONTENTS
Introduction................................................................................................................................4
Task 1.........................................................................................................................................4
Importance of accurate product costing.................................................................................4
Problems relating to traditional costing system used by Beztec............................................5
Task 2.........................................................................................................................................6
Task 3.........................................................................................................................................7
Task 4.........................................................................................................................................8
Task 5.........................................................................................................................................8
Task 6.........................................................................................................................................9
Conclusion................................................................................................................................10
References................................................................................................................................11

TABLE OF FIGURES
Figure 1: Comparison of Traditional and ABC Costing............................................................6

INTRODUCTION
Product costing can be referred to as a procedure of assigning a cost to inventory and
production on the basis of expenses occurred during producing or purchasing a product
(Allain and Laurin, 2018). Costing method plays a significant role for manufacturers as well
as for service entities in order to attain variant such as simplicity and accuracy in information
and it is significantly affected by selected method. The decision taken by the manufacturer
relating to the product depends on the data or results attained from the costing method. In the
present report, the main emphasis is done on the importance of accurate product costing.
Further, problems related to traditional costing system which is used by Beztec is discussed
under the report have been discussed. In addition to this, the cost driver rates are also
computed, which are recognized by ABC costing system. Along with this, a comparison of
the cost, gross profit, and gross profit percentage per unit is measured in order to ascertain the
more appropriate method of costing.
TASK 1
Importance of accurate product costing
The term accuracy can be defined as the efficiency of the company regarding the tracing of
its expenditures by product cost as well as to the inventory values. As per assertions of
Schram, (2015), accurate product costing assessment assist company in enhancing the level
of accuracy of cost computation procedure, particularly in the case of variable costing, which
only allocates product units as the variable costs linked with their production and leaves fixed
costs to other expenditures accounts.
 The correct base for budgets: Further, it will assist in implementing the
corresponding principle, fixing cost to the value they generate during the operations
of the company. Accurate product costing provide an appropriate base for developing
a budget which provides a correct estimation of expenditures and incomes in order to
make a sophisticated prediction for the upcoming fiscal year and this is only possible
of the data is accurate (Dale and Plunkett, 2017). Since if production costs are not
computed accurately than in that case significant errors can take place in the process
of the budgeting. For instance, neglecting a part of product cost at the time of
estimation which is equal to $5 per unit can lead to devaluation of product budget of