Why It Matters: Costing Methods

Why learn about costing methods?

A planner opened with several figures written in it.

Properly allocating costs to your products is a crucial part of making sure they are priced correctly to make a profit. Things like payroll, custodial work and human resources are departments that do not make their own revenue, but support the departments that do.

These costs are important and do need to be added to the manufacturing costs when preparing detailed cost information about your products. Imagine a company without a payroll or custodial department! These are not costs to be avoided, as they are vital to the operation of the company. There are many ways to allocate the costs that cannot be directly tied to the production of a product. We will examine the methods, along with pros and cons of various costing methods.