One Cost System Isn't Enough

Article 1: One Cost System Isn’t Enough

Sarah Patricia Ortiz

14-0106

Managerial Accounting

September 10, 2015

UNIBE

In order for companies to function properly, they need a full set of reliable and accurate information provided by costing systems. With costing systems companies can analyzed the costs incurred by a business and analyze this information in order to achieve higher profitability, cutting costs, creating different strategic plans, creating budgets, among others. In Managerial accounting costing systems are purposed for internal use, so the managers see what is actually important at the moment. According to the article “One Cost System Isn’t Enough”, there is not a cost system that perfectly fits all companies. Sometimes companies might have a cost system that does not give them the information they need and this way they cannot accurately measure their performance. For example, some companies have realized that with the costing system they use they cannot see the impact of their efficiency activities; with installing a new system that isolates the variances at the cost center where they occurred, this is possible now. The problem is that with this cost system companies cannot address the three most important functions which are inventory valuation for financial and tax statements, operational control and individual cost measurement.

According to “You need a new cost system when…” by Harvard Business Review, sometimes the environment of companies changes and that obliges them to change their cost system; according to this article this expense is necessary when the consequences of relying on inaccurate information are severe. Sometimes we might think our company is doing good when actually it is not just because we are using the wrong cost system. Also, taking in account the book “The Archeology of Accounting Systems”, costing systems change over time and companies need to be...