Marsha Keune, Ph.D.
Firms use costing methods to determine the price of a product and to analyze the efficiency of resource consumption. These methods often comply with the external financial reporting rules set forth by the U.S. Generally Accepted Accounting Principles (GAAP), which require all manufacturing costs, including overhead, to be assigned to goods in inventory for costing purposes. However, firms can internally use alternative costing methods that do not comply with GAAP. The purpose of this case study is to understand and evaluate the costing method currently employed by a company in the Dayton, OH area1, and identify the most beneficial costing method for its circumstances. Background research on common costing methods including traditional, process, job, activity-based, and variable is used to analyze the Company’s costing method. This background research includes each costing method’s advantages and disadvantages along with circumstances that help dictate the use of each method. This research is combined with research on the Company to develop expectations regarding the Company’s current costing method and to develop an interview guide for employee interviews. Interviews with the Company’s employees and a factory tour are used to understand the Company’s current costing method, including why management selected a particular costing method, and the advantages and disadvantages of the method. This information is then synthesized and analyzed to determine if the current costing method best serves the Company’s interest or if an alternative costing method would better serve the Company. This is completed by assessing the validity of the other costing methods and possible advantages and disadvantages of use for the Company.
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Hunton, Natalie, "A Case Study on Inventory Costing Methods" (2017). Honors Theses. 161.