2.3 Different costs from different methods

Everything you do involves approximations and sophistication can give rise to misplaced confidence in the accuracy of the output. This might be false. Again, there are two case studies.

A: a university student cost report

In this case it is important to know which students cost how much and how much revenue they create. It is also important that if you are a public service you need to show that you might have more students that are more costly and would therefore need more money than other universities. This also helps allocating resources in the right way. Greater disclosure, greater accountability can form the basis for better economic decision.

Cost data is open to misunderstanding, is easily misinterpreted and can lead to faulty decisions and expensive failures. It is important to be familiar with the assumptions operating behind the cost data it generates and to be sure of how the data can and cannot be used.

B: Changing the costing menu

In the 1980s Johnson and Kaplan wrote Relevance Lost which formed the basis of the currently popular activity based costing which is used to have greater insight into its costs.

Again you look at what kind of different that you have and then look at your costs based on what this product really uses. In the case of this kitchen, menus are looked at in terms of % of kitchen labour, % of direct costs, how many special ingredients are used, … all on a per menu basis to find the cost per menu in a meaningful way. This helps setting your price.

Remember that costs are never correct, just reasonable and reasonableness of data systems is not constant.

In total this showed that calculations and analysis are a matter of judgement, exploring different methods of analysing costs to gain better understanding and find things interesting for management.