Purpose, Advantages And Pitfalls Of Costing Techniques

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3. Purpose, advantages and pitfalls of costing techniques
As alluded in the introduction, the role and effective use of costing techniques may vary depending on a certain number of contextual variables and objectives. This section explores these variables and thus provides a critical assessment of the roles and uses of the techniques.
Economic rationale
From a public sector economic rational point of view, Bergman (2009) argues that marginal costing is superior to absorption costing to the extent that a public entity has access to tax revenues (i.e. subsidies) to cover for a large part of its fixed costs. This argument has resonance in sectors such as education or health. In France, where higher education is entirely subsidized, a debate has been launched by a new fee structure in a university where students are asked to contribute to their tuition. The rational is that education has both a public benefit (a more educated and thus productive society) and a private benefit
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This is particularly the case in centralized systems where managers have little say over budget.
Interestingly, the spread of New Public Management (NPM) in administrations (whereby the entrepreneurial behavior of managers has been favored, as well as the introduction of more market-based /private sector features in the public sector) has favored more decentralized systems where managers have an increase say over overheads. For instance, international organisations such as the World Bank have increased their field presence by opening country offices. Through effective decentralization, office managers have gained increasing control over overheads – ranging from decision on rents to office

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