Sales and freight terms that define payment terms, sales, and title transfers.
options here range from 15 days to as many as 90 days in someindustries, and letter of credit terms provide additional options. These options, statedCavinato, "often are not considered by managers in purchasing, traffic, and sales. Instead,most firms mandate these terms and they become 'boiler plate' in purchase orders, carriercontracts, and invoices. It can be mutually beneficial to negotiate these terms withsuppliers and carriers.
Costs to receive, process, or make ready, including unloading, counting, inspection, andinventory costs, as well as expenses associated with disposal of packaging and otherproduct protection/transportation materials.
Logistics expenses (warehousing, loading, unloading, handling, inventory control), whichare typically lumped together under the catch-all title "Overhead," despite the fact thatcosts for each of these can vary significantly depending on the arrangement.
Production costs accrued in actual manufacture of goods.
Quality costs, including costs associated with defective products (what percentage andhow far down the production line), inspections, product returns, chargebacks, cooperage,and storage.
Lot size costs, including inventory and cash flow costs associated with lots of varyingsize.
Overhead costs of supplier and customer transactions, including billing, collection,payment preparation, and receiving processes.
Product improvement and modification, including costs of correcting defects andstandardization of materials and packaging.
Regulatory/environmental costs associated with meeting federal or state laws andcommunity expectations on environmentally friendly production and packagingprocesses.
PRODUCT COSTING IN MULTI-PRODUCTENVIRONMENTS
Some manufacturers distort true product costing results by evenly distributing costs for a certainaspect of production across all product lines, even though costs might vary with each specificproduct. In some instances, this practice might have little or no impact on a business's wellbeing; a company that is enjoying record growth and profits on all three of its product lines, forinstance, is unlikely to be seriously harmed by accounting practices that evenly dividetransportation costs three ways, even though one of the product lines may account for, say, half of the firm's transportation expenses. Huge profits mask such inequities fairly well. But relativelyfew companies are in such a luxurious position. Most companies
and especially most smallbusinesses, which typically have less margin for error than their larger cousins
need to work hard to arrive at true product costing figures. "As national and global competition increase,"wrote Lessner, "even tiny costing disparities can have an over-whelming impact on whether aproduct
or an entire company, for that matter
—survives…. Over the longterm, product
profitability analyses that use these distorted costs cause management to erroneously assume