Question

How does global operations impact the methods used for costing ? Explain in detail

Answer 1

The whole idea of costing is to follow different norms in different countries in accounting for costs. In case a country has global operations, the accounting conventions differ. Different countries follow different statements of standard accounting practices and so the treatment of costs will be different. For instance the classification of costs between selling, general and admin expenses will vary from country to country. This will accordingly effect the gross and operating profit lines based on where the costs are placed. This will mean that the profit numbers will vary based on the method of accounting. For instance, service company adjustments are performed differently in different countries and so the nullifying of the cost of goods sold may work in some countries but may not in other countries. Thus global operations have an impact on the costing methods used.