Product costing in UK manufacturing organizations

This paper reports and comments on the findings from a questionnaire survey on the product costing practices used by 260 UK manufacturing companies. The aims of the paper are (1) to provide evidence to ascertain the extent to which recent criticisms of product costing can be judged and (2) to compare and comment upon the theory and practice of product costing. The survey findings indicate that product costs computed to meet inventory valuation requirements are widely used for decision-making and internal profit measurement. The majority of firms, however, used both full costs and variable costs for decision-making and the findings suggest that product cost information is used in a more flexible manner than that depicted by previous studies. The paper reports on the methods used by companies to compute full product costs. Most organizations used questionable overhead allocations that are likely to result in the reporting of distorted product costs. The concluding sections of the paper discuss the possible reasons why observed practices differ from conventional wisdom and suggest areas where further research is required.