Importance Of Costing System

Introduction

In any business, costing is sacred; regardless of how big the business is. Nevertheless, every business is interested in in minimizing costs in order to maximize profits as one of the best sustainability strategies in the modern highly competitive world of business. However, a costing system is required for this purpose. A costing system can be defined as a system designed to be used by a company to monitor the costs it incurs, including a set of processes, controls, reports and forms used to create an aggregate of costs and revenues with the primary purpose of enhancing the profitability of the business. Essentially, systematic allocations of the costs in a business are organized in the form of costing systems (Epstein & Buhovac,

Activity-based costing is important in establishing, analyzing, and keeping track of environmental, economic, and social costs. With activity based costing, organizations can incur more realistic production costs. ABC helps an organization control the cost by eliminating any activity that doesn’t contribute to the final value of the product or the entire process of production (Sharfman & Fernando,

Unlike the aforementioned methods, full-cost accounting mainly involves the analysis of how a given product or activity may affect the organization’s relations with other entities, or even the environment (Paladino, 2011).

The main advantage of full cost accounting is founded on the fact that it establishes the full cost of production, and a clearer picture of a wholesome cost of production is determined. However, it doesn’t take into account the individual products or processes, just like activity based costing. As a result, the company may suffer losses from products and activities unknowingly. Operating under uncertainties is what most businesses wouldn’t like to be entangled in as emphasized by Paladino (2011).