A manager says “According to A

Amanager says “According to AASB 102 inventories, product costs usedfor inventory valuation or cost reimbursement need to be based oncurrent costs, which are objective and verifiable.

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

Agree or disagree with explanations in detail.


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

However, nowadays, a new system can say Product-wise costing isdone in businesses where every cost is allocated directly to thecost charged to manufacturing a particular product. A product ischarged different costs like material, labor, salaries to thosemaking specifically only that product, other overheads, etc. So, itis beneficial to find out the effectiveness and profitability ofeach product even in small businesses. Like, we can better knowthat from a variety of products which product is having good marginwith 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 thatproduct costs are not useful for and relevant to ourdecision-making process for the future operational plan. Especiallywhen our business is small and we don’t need to implement acomprehensive product costing system..

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