Inventory costing is vital for several reasons: - Financial Reporting: Companies need to report the value of their inventory on their balance sheets and income statements. Accurate costing ensures compliance with accounting standards and provides a true picture of financial health. - Taxation: Inventory valuation impacts the calculation of cost of goods sold (COGS), which in turn affects taxable income. Incorrect inventory costing can lead to inaccurate tax filings. - Decision Making: Businesses rely on inventory data to make decisions about production planning, procurement, and sales strategies. Inaccurate inventory costing can lead to suboptimal decisions.