Autovee Ltd is a small company manufacturing a range of motor vehicle components . The company sells approximately one-third of its production direct to motor vehicle manufacturers, the remaining two-thirds are sold as replacement parts through wholesale and retail outlets owned by the company. These outlets also sell vehicle components purchased from other manufacturers.

The only accounting data available in the company is that which is required to produce the company's published accounts, no accurate cost records are maintained and the auditors have suggested that the company would benefit from the introduction of a costing system .

Required:

Draft a report to the directors of Autovee Ltd explaining and illustrating how a costing system would assist the management of the company.