An organization often has no clue about the origin and creation of the company costs, nor are most particularly concerned about who implemented the costing strategy. If employees only knew that a better costing method could save a ton of money, as well as impress the boss enough to earn that cozy corner office, then they would surely be more excited. Many companies and many live in the dark ages; they often use pricing models that were developed decades ago and were never updated (7). When asked how they came up with their pricing methods, the answer is usually ‘someone who worked here 15 years ago developed it and he’s no longer here’ (7).
Is there a need to implement newer costing methods? As businesses grow, executives feel more pressure to increase profits and strategize with flawless precision. A costing method known as activity-based costing (ABC) has been around for years. It has enhanced the reliability of cost information, producing a true cost, and better representing the costs of an organization. Various industries today use activity-based costing for product costing, target costing, service pricing, customer profitability analysis, and product line profitability analysis (7). ABC is currently the leading cost method to produce the most reliable, accurate costing information for manufacturing companies today.