Product Costing in Practice: The Experience of MicroSave (Report)

This paper on product costing seeks to extract lessons from MicroSave's work with its Action Research Partners on introducing allocation-based costing systems. It draws primarily on the experience of costing in eight institutions in four countries.

The paper investigates and reports about:

• The reasons for performing product costing;
• The benefits derived from product costing exercises;
• The two methodologies adopted for product-costing:
  • Allocation based costing,
  • Activity based costing;
• The advantages and disadvantages of the two costing methods;
• MicroSave's approach to allocation based product costing.

Finally, the paper lists the key lessons learnt by MicroSave about the costing process:

• Costing exercises have more chance of successful completion and the results integrate into decision-making processes in institutions with management commitment, trained and capable staff, careful preparation of the costing exercise, and sufficient allocation of resources;
• Costing may be considered "institutionalized" only when there is evidence that the process is being repeated, that the results of the costing exercises are used strategically, and that additional investigations are being performed;
• Product costing must be reviewed regularly against a financial model during the pilot-test phase;
• Additional investigations are often required to understand the nature of certain costs. The required areas of investigation are focused and targeted by the costing exercise itself. Where detailed investigation is required, a process audit can be used to unpack a particular process.