Strategic Management Accounting Essay Example | Topics and Well Written Essays - 3000 words - 5

Strategic Management Accounting - Essay Example rocuring cheaper resources can enable a company to keep product costs low, thereby helping either in generating higher profit margins, or lowering selling prices and increase the company’s competitive edge in the market (Lister, 2014; Caplan, 2014). Some of the types of product costing methods are: Standard costing is the conventional method of costing used by most of the companies today. In this method, a company computes the product cost by forecasting the prospective expenditures that the company is going to incur based on expenditures in the previous fiscal; and derives the final price of its products after forecasting future demand of its products. In short, it is a retrospective process that tries to create benchmarks for future costs of production based on its past costs of production. There are 3 components of standard costing: cost of raw materials, cost of labour and overhead expenditures. These three costs are combined and using the targeted value of production, the company determines the cost of each unit of the product. Standard cost can be defined as the budgeted cost of a unit of output The prime benefit of standard costing method is the simplicity of this method. It helps in setting a target cost of production by benchmarking the costs of each factor of production. Creating cost benchmarks using this process is beneficial to the overall cost budgeting of the company. Also, it enables a company to create target revenue levels that it should derive from the sale of each unit of its products. However, standard costing method does not provide the platform for a company to analyse the individual cost factors in details. Also, actual costs incurred by a company for producing its goods during a particular fiscal year may be significantly more than the standard costs of production estimated, due to various real-time factors such as inflation, availability of raw materials and price increments by suppliers. Due to this, the standard costing method is