Costing is a powerful tool that helps managers discover the true costs of products. Better management information on products helps managers make key decisions about product design, delivery mechanisms, and pricing. A costing exercise can also raise awareness of the cost components of different products, reveal hidden costs, instill cost-consciousness in staff, and uncover excess capacity and other operational problems.
Activity-based costing (ABC), the preferred method outlined in this tool, traces indirect costs in microfinance to core operational activities. In addition to individual product costs, ABC helps employees and management understand the processes and activities they perform, as well as the costs of each process. It is a potent tool for identifying opportunities to improve business process effectiveness and efficiency.
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