Issues in Costing - Describe 3 issues/problems that a company could encounter. .

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Business Finance


Describe 3 issues/problems that a company could encounter when trying to determine the actual cost of a good or service to be used in the costs of goods sold. Provide an example of a company or industry where these issues could be present.

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Explanation & Answer

Issues in Costing

There are several problems or issues that an organization can face when annoying to define the actual costs of goods sold. 

  First problem which I would like to discuss is determination of how much compensation of different workers should be credited to their job on a specified task.  For instance, an organization engaged in business of drugs makes different kinds of drugs.  The sales force of organization goes out in the market to sell out their drugs.  At this point the amount paid to the sales force should be credited to each variety of drugs?  This kind of problem creates hurdles to identify production cost of selling drugs.

  The second problem relates to the variability in inputs prices over a specific time period.  For instance, the Pepsi procures sugar in larger amount.  Let us suppose that the sugar price fluctuates from purchase to purchase.  It might be difficult to clarify the accurate per unit price of sugar that puts into a certain amount of soda.

  The above problem can happen with fixed costs.  If Pepsi procures latest equipment, how much of the cost of that equipment must have to be credited to any specific batch of soda.

  Above are few examples of problems why it may be difficult to define the actual production cost of goods sold.

Really useful study material!