The units of value added to offset the cost calculation shortcomings: an opportunity for small African businesses

Abstract

Firms are growing increasingly complex and have to respond very quickly to changes in an unstable environment. Using reliable costing methods, they must be able to clearly identify sources of losses and profit. This requires them to adopt a radical change of perspective, replacing calculation of the margins on products with calculation of the profit on each sale. This type of analysis, facilitated by the UVA costing method, can inform businesses, particularly small and medium enterprises (SMEs), which of their customers are profitable and which generate losses, which of their products and services are not meeting customer demand, which prices are not reflecting the costs borne, which processes must be improved, and so on. Firms can thus make operational and strategic decisions to improve profitability. SMEs in African countries, facing a difficult business context, could usefully take advantage of these systems, which are appropriate for their structures.