21st Century Organizational Transformation

by Asif J. Mir

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Product-line Costs

17 Sep 2013 Leave a comment

by Asif J. Mir in 21st Century Corporate Strategy Tags: account, accountant, accounting, agreement, area, assign, aversion, bedrock, behave, broken, business, category, change, clear, contract, cost, decision, definition, department, determine, develop, disadvantage, divide, down, easy, expand, far, financial, fix, general, help, impossible, imprecise, incur, large, lump, manage, management, manner, natural, net, normal, number, operate, percentage, period, picture, precision, problem, Product, Product-line, professional, profit, reluctant, represent, root, rule, semi, share, shift, simply, specific, split, statement, step, total, tradition, unit, unless, variable, various, volume


Costs in the managed category can be changed up or down by management decisions. As a general rule, they are far more variable than they should be as a business expands and more fixed than they should be during periods of contraction.

 Once there is agreement on these cost categories and definitions, the next step is getting help from the accounting department to determine how the costs incurred in each of these categories should be divided and assigned to specific product businesses. This is always easier said than done. Many accountants are reluctant to divide fixed costs into the categories or to shared costs to specific product areas. Because it is impossible to do this with the precision accounting professionals normally use to develop traditional financial statements, there is a natural aversion to shifting numbers in an imprecise manner. However, there is simply no way to develop net profit statements for each product-line business, or to see clearly how costs behave with volume changes unless the total lump of fixed costs is split into the “bedrock,” semi-fixed, and step categories and assigned to these business units. And  net profit picture for a product/market business can’t be developed unless shared costs, often representing a large percentage of total operating costs and often the root cost disadvantage problems, are broken down and assigned to various business units.

 My Consultancy–Asif J. Mir – Management Consultant–transforms organizations where people have the freedom to be creative, a place that brings out the best in everybody–an open, fair place where people have a sense that what they do matters. For details please visit www.asifjmir.com, and my Lectures.

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