You recently joined an accounting consulting firm. Your first client is a new manufacturing start-up that is trying to set up their costing system, and develop good processes for their upcoming growth. Their competitive advantage lies in first-to-market widgets which the start-up believes will go very successfully during launch. They have already secured private equity funding, as well as Canadian Government zero-interest loans designed specifically for start-ups that are furthering Canadian research & development.

Your manager has asked you to prepare a report for the start-up on best costing practices.

In your report, include the following:

a) In your own words, name the three cost measurement systems and explain how they measure costs for the three cost classifications.

b) In your own words, recommend a cost measurement system and discuss which overhead allocation method to pair it with. Provide justification as to why the cost measurement system and overhead allocation method you choose is the best.