Companies that still rely on their legacy costing systems are putting themselves at more of a disadvantage then they probably realize.
“Many manufacturers have developed overhead rates that are being used long after their “best if used by” dates. The reasons for this include the thought that inflation isn’t all that significant, so how much different can the rate be from last year, and besides it’s so much work to update the rate. After a while, you find the rate hasn’t been updated in a few years and then your costing system has slid into ineffectiveness. Also, cost drivers tend to not be examined that often. Some manufacturers have always used labor hours as cost drivers, so they do not even consider that the significant capital expenditures they have made in the business make the more plausible cost driver machine hours. In standard costing systems, standards are sometimes not updated as often as they should be for some of the same reasons.”
The result of inaccurate cost accounting systems can lead to investing time and effort into products or customers that are either marginally profitable, or actually unprofitable.