HOW COST ACCOUNTING DISTORTS PRODUCT COSTS The traditional cost system that defines variable costs as varying in the short term with production will misclassify these costs as fixed. BY ROBIN COOPER AND The cumulative effect of deci er scale production ROBERT S KAPLAN ons on product design, introduc Similarly, a differentiated pro tion, support, discontinuance, and ducer achieve competitive advan In order to make ble deci pricing helps define a firm's strate tape by meeting special custom nions concerning the products cy. If the product cost informatich ers' needs with products whose they market managers need to distorted, the firm can follow an costs of differentiation are lower know what their products con inappropriate and unprofitable than the price premium chard Product design new product intro strategy. For example, the low.com for special features and service. In duction decis, and the amount producer often achieves competi the cost system fails tore di of effort pended on trying to mar tive advantage by writing abroad ferentiation cost properly, then keta in product or product line range of customers. This strategy the firm micht come to compete will be influenced by the anticipat will be successful if the economie in segments that are actually ed cost and profitability of the of scale exceed the additional costs unprote product Conversely. if product the diconomies of scope, cand profitability appear to crop the by producing and servicing a more question of discontinue will be diverse product line. If the cost FULL VS. VARIABLE COST med Product costa als can play tem does not correctly attribute the espite the importance of cost an important role in price additional costs to the products information direcment particularly for customed prod that cause them then the firm ucts with low sales volumes and might end up competing in without readily available arket ments where the scope related by full by variable in a full costa enced the benefit from lare cost wystem, fed production recated to product that ported product care total The extract above is a journal article entitled "How cost accounting distorts product costs" published by Robin Cooper and Robert S. Kaplan. As the course instructor of the course of Managerial Accounting, you discussed the issues related to cost accounting with your students. After the first class, your students raised the following questions. HOW COST ACCOUNTING DISTORTS PRODUCT COSTS The traditional cost system that defines variable costs as varying in the short term with production will misclassify these costs as fixed. BY ROBIN COOPER AND The cumulative effect of deci er scale production ROBERT S KAPLAN ons on product design, introduc Similarly, a differentiated pro tion, support, discontinuance, and ducer achieve competitive advan In order to make ble deci pricing helps define a firm's strate tape by meeting special custom nions concerning the products cy. If the product cost informatich ers' needs with products whose they market managers need to distorted, the firm can follow an costs of differentiation are lower know what their products con inappropriate and unprofitable than the price premium chard Product design new product intro strategy. For example, the low.com for special features and service. In duction decis, and the amount producer often achieves competi the cost system fails tore di of effort pended on trying to mar tive advantage by writing abroad ferentiation cost properly, then keta in product or product line range of customers. This strategy the firm micht come to compete will be influenced by the anticipat will be successful if the economie in segments that are actually ed cost and profitability of the of scale exceed the additional costs unprote product Conversely. if product the diconomies of scope, cand profitability appear to crop the by producing and servicing a more question of discontinue will be diverse product line. If the cost FULL VS. VARIABLE COST med Product costa als can play tem does not correctly attribute the espite the importance of cost an important role in price additional costs to the products information direcment particularly for customed prod that cause them then the firm ucts with low sales volumes and might end up competing in without readily available arket ments where the scope related by full by variable in a full costa enced the benefit from lare cost wystem, fed production recated to product that ported product care total The extract above is a journal article entitled "How cost accounting distorts product costs" published by Robin Cooper and Robert S. Kaplan. As the course instructor of the course of Managerial Accounting, you discussed the issues related to cost accounting with your students. After the first class, your students raised the following questions