PRODUCT COSTINGCHALLENGE THE SYSTEMBELOW-THE-LINE COSTSWould your response be different if the ppsx

PRODUCT COSTING

CHALLENGE THE SYSTEM

BELOW-THE-LINE COSTS

Would your response be different if the following information were available to you?

A has been made for many years and any design/manufacturing problems eliminated.

It is sold in large quantities to a few customers.

B is a new product with many teething problems. It is sold in small quantities to many

different customers.

Discussions with the relevant

departmental managers enable the

below-the-line expenses to be

analysed by product. Don’t be put off!

You are not looking for excessive

precision in this allocation. Managers

should be able to give you an

approximate percentage split.

Does your business make its strategic decisions at the gross profit stage? 87

A B Total

£££

Sales 100 100 200

Less:

Cost of Goods Sold 70 50 120

Gross Profit 30 50 80

Expenses:

Admin 2 8 10

Selling 4 16 20

Service - 30 30

Operating Profit/(Loss) 24 (4) 20