Product costing practices in the North American hardwood component industry

Companies, when bidding for jobs, need to be able to price products competitively while also assuring that the necessary profitability can be achieved. These goals, competitive pricing and profitability, cannot be reliably achieved unless industry participants possess a full understanding of their company's cost structure. Competitors blame companies without detailed knowledge of their company's cost structure for submitting bids that are priced unreasonably low, thereby making it harder to achieve the necessary profitability. To better understand the product costing practices of North American hardwood dimension and component manufacturers, a mail survey was conducted. A total of 495 companies were contacted and 74 valid responses were obtained for a response rate of 16%. Most respondents gather primarily financial information from their current costing system. Respondents use the financial information to create financial reports, tax reports, inventory valuation, and to calculate the cost of their product. A majority of respondents (74%) reported using a traditional cost accounting system, 13% an activity-based cost accounting system, 4% a lean accounting system, and 9% of respondents indicated using a proprietary system.