One Cost System Isn't Enough

No one cost system gives managers all the information they need to promote operational efficiency and produce the highest quality product at the lowest cost. Cost systems must serve three functions--inventory valuation, operational control, and product cost measurement. This system for operations management performs three functions: it reports information according to production cycles, differentiates between fixed and variable costs, and allocates costs only to cost centers directly related to production activities. A more subjective system is advised for measuring product costs, starting with interviews with supervisors and including transaction measures as well as traditional volume-related measures.