Which combination of costing methods is most suitable for a firm aiming for cost leadership in a commodity product market?
Understand the Problem
The question asks which costing system best suits a firm pursuing cost leadership in a commodity market. We need to consider which methods are most efficient and accurate for managing and reducing costs in a high-volume, low-margin environment.
Answer
Standard costing combined with activity-based costing (ABC).
For a firm pursuing cost leadership in a commodity product market, a combination of standard costing and activity-based costing (ABC) is most suitable. Standard costing helps control costs by setting benchmarks, while ABC identifies cost drivers for better cost management.
Answer for screen readers
For a firm pursuing cost leadership in a commodity product market, a combination of standard costing and activity-based costing (ABC) is most suitable. Standard costing helps control costs by setting benchmarks, while ABC identifies cost drivers for better cost management.
More Information
Cost leadership involves striving to become the lowest-cost producer in the industry. This often means selling commoditized products and targeting a broad market.
Tips
It is important to understand the difference between different costing methods, and to select the combination that best fits the company's goals and resources.
Sources
- Cost Leadership – Mastering Strategic Management - opentextbc.ca
- Costing Methods Explained – Finding the Best Approach - MRPeasy - mrpeasy.com
- Cost Leadership Strategy Examples, Definition and Benefits - digitalleadership.com
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