Cost Management Essay

1173 words - 5 pages

Introduction
Cost management revolves around reducing, estimating, containing and avoiding costs using various different methods (Drury, 2008) (Groth and Kinney, 1994). Reducing costs is done through seeking to lower both fixed and variable costs associated with an activity. Containing costs is achieved by constraining or avoiding future increases to costs and cost avoidance revolves around eliminating unnecessary activities (Groth and Kinney, 1994). Cost management starts at identifying how costs arise and the events associated with them, only once activities have been identified can they start to be managed successfully. Cost management is often ignored by managers instead they are in ...view middle of the document...

Target costing emerged from life-cycle costing as it was a way of controlling costs at these early stages.
Target Costing:
Target costing is a cost management system that takes part in market analysis to determine the final cost customers will pay for a product, deducting a margin and then works on getting all costs to that amount (BusinessDictionary.com, 2014). Target costing is most useful during the planning/design phase (Bayou & Reinstein, 1998) (Drury, 2008). This is beneficial as it manages to control and reduce the amount of costs that are committed to at the start of product development. This costing system motivates managers to control costs as only the projects in which target costs can be achieved or enhanced will be put into production (Bayou & Reinstein, 1998). However, it must be noted that a key weakness of target costing is if the costs and cost drivers used during target costing process are not accurate there may be a negative impact on profits. This negative impact would result from an increasing fixed cost per unit e.g. administration costs of €20,000 spread out over 20,000 units, gives a fixed cost per unit of €1, however spread out over 5,000 units gives a fixed cost per unit of €4, this could drastically affect the bottom line profit and although achieving the target sales price, costs may not be fully managed (Drury, 2008).

Kaizen Costing:
Kaizen costing is a Japanese method of continuous cost improvement. Its focus is on the production process and the cost reductions through utilising/ increasing efficiencies in production process. Potential cost reductions are smaller with Kaizen costing as their aim is to achieve pre-set reductions and the majority of costs have already been locked in (Drury, 2008). Kaizen costing is most useful in the manufacturing stage as its focus is on continual improvements, engaging front line staff may be a useful way to achieve Kaizen costing targets as they are dealing with the processes daily and may see efficiencies that are not obvious to people in the office.
All of the above are methods used in cost management. Each leading on from each other helps creating better efficiencies in the firms and shows managers where costs can be controlled, avoided or contained. Implementing these systems will help keep cost management at an optimal level.
Controversy may arise concerning which costs are necessary and which aren’t e.g. the financial manager may not see the point in spending €X amount on marketing, however the marketing manager may argue that it’s necessary and sales increased so much as a result of it. The above methods do not show clearly with costs are associated with which activities. Activity Based Management is useful for this as it shows costs by activities and in turn shows why costs are incurred and to why activity they relate. Activity based management is based on a different premise from the others previously mentioned. Life-cycle costing, target costing and Kaizen costing are...

Find Another Essay On Cost Management

Total Quality Management: Cost of Quality in Textile Exports Sector

2398 words - 10 pages 01AIMS AND OBJECTIVES OF THE STUDYAIMS1.The aims behind this research work are;oTo study environment of textile sector in Pakistan and the cost of quality in textile sector.oTo suggest that how the TQM can be implement in textile sector.OBJECTIVES2.The objectives of this report are;oTo fulfill the course requirement of "Total Quality Management" and understand that how total quality management helps organizations to work effectively.oTo study the

An internet article review - Winning the Cost War by Scott H. Graham is to emphasize the importance of cost management

807 words - 3 pages The focus of the article Cost Management - Winning the Cost War by Scott H. Graham is to emphasize the importance of cost management. Throughout the article, the emphasis is on ABC (activity based costing) and its importance in being able to both track what is happening within the organization and ways to predict how costs can be cut while existing services maintained. The organization referred to within the article is the U.S. Army and the

Management Accounting: Cost analysis and determining the Break even point and Selling Price of an event package

2111 words - 8 pages Management Accounting Cost analysis and determining the Break even point and Selling Price of an event packageResearch, cost and price a package for an event. The package is for the executive team of a company based in London. A detailed cost analysis should be prepared. The B/E point and the selling price should be determined of the packageContentsSection 1: Introduction page 1Section2: The Package. page 2 2.1 Calculations and Tables page

Amongst brand/marketing management there is a significant polarization about the cost-effectiveness of using celebrities in advertising communications. Explain

970 words - 4 pages the list goes on and on. Commonly called "testimonials" or "celebrity endorsements", this technique of persuasion says that consumers relate to the person(s) appearing in the ad: If the celebrity / athlete / star use the product, then it must be good, so I will purchase it too.In today's world, the use of celebrity advertising for companies has become a trend. But opinions on the true cost-effectiveness of the use of celebrities have been

Title: Cases in Cost Management: A Strategic Emphasis Author: John K. Shank Case: Tijuana Bronze Machining Description: Product Profitability Analysis with ABC

2871 words - 11 pages Untitled Tijuana Bronze Manufacturing Question 1: Total Manufacturing Overhead $682,688 Overhead per dollar of labor $4.39 Product Cost per Unit VALVES Material � $16.00 Labor > (7,500*16*.25) / 7,500 $4.00 Overhead > .25*16*4.39 $17.56 Total > 16 + 4 + 17.56 $37.56

Cost Accounting

1319 words - 5 pages Cost Accounting PAGE 2 Running Head: COST ACCOUNTINGCost AccountingAns.1Yes, Generally Accepted Accounting Principals (GAAP) is made for financial accounting. Management accounting is for internal purposes and can be flexible to meet the requirements of the organization. Management accounting is done for internal purpose of the organization. Generally, accepted principals govern only those transaction or accounting systems which are related to

Cost Accounting

1157 words - 5 pages financial information (Khan, 2010). In this paper, I will discuss the reasons why cost accounting is important to businesses and what role it plays in order for they to succeed. I will also discuss the different methods of cost accounting and how are they used? What does operating a budget help a firm’s management; what are the elements of a budget and how are they constructed. Businesses use cost accounting to help manager illustrate

Cost Systems

961 words - 4 pages & Kusiak (1994), “the use of ABC can give management a baseline of where costs are being generated or consumed but will not tell them how to control these costs and support cost management in the design stages” (p. 850). Conversely, LCC focuses on the design stage and assesses cost throughout the life of the product or service (Dorf & Kusiak, 1994). Consequently, better estimates of pre-production costs are attainable (Dorf & Kusiak, 1994). Finally

cost accounting

1865 words - 7 pages management in making decisions, it is not allowed for external financial reporting Trans 1, 2 Prepare an Absorption Costing (GAAP) income statement from data on Trans 1. Note that CofGS absorbed $300,000 of Fixed Cost and that the remaining $30,000 is deferred as an Inventory asset. Ending Inventory = 2,000 units x $65 = $130,000 Trans 3 Describe format of a Variable Costing income statement Sales - Variable COGS

Cost Descriptors Paper

1574 words - 6 pages ) expenses.The term cost is made specific when is modified by such descriptions as direct, prime, conversion, indirect, fixed, variable, controllable, product, period, joint, estimated, standard, sunk, or out of pocket. Each modification implies a certain attribute that is important in measuring cost. Each of these costs is recorded and accumulated when management assigns costs to inventories, prepares financial statements, plans and controls

Cost Allocation Method

1612 words - 6 pages philosophies and objectives. Each hospital in the fulfillment of its contractual obligations should be expected to employ sound management practices.The application of the principles established herein shall be in conformance with the generally accepted accounting practices. (45 CFR Subtitle A (109 Edition, Pt.74, App. E)4) Nonprofit organizations- A cost is allocable to a particular cost objective, such as a grant, contract, project, service, or

Similar Essays

Project Cost Management Approach Essay

1813 words - 7 pages PROJECT COST MANAGEMENT PLAN TEMPLATE This Project Cost Management Template is free for you to copy and use on your project and within your organization. We hope that you find this template useful and welcome your comments. Public distribution of this document is only permitted from the Project Management Docs official website at: www.ProjectManagementDocs.com COST MANAGEMENT PLAN COMPANY NAME STREET ADDRESS CITY, STATE ZIP CODE

Management Restructuring And Cost Cutting Efforts

836 words - 3 pages Companies should ask three critical questions as they shift from cost-cutting to expansion mode.In recession, most companies know what they need to do: cut costs. But in recovery, corporate muscles that have gone unexercised must be flexed anew. In preparation, boards and top managers would do well to ask three basic questions.What is success?In earlier eras, the success of a company was judged by a mixture of measures, including its fundamental

The Relationships Between Cost Management And Quality Management

1300 words - 5 pages The Relationships Between Cost Management and Quality ManagementThe relationships between cost management and quality management are an interesting one. Everyone in this world is a consumer of some sort. We all buy things and we all want only the best products for the best price. But, where is the line to be drawn for how much do we pay for quality? Most competitive companies have goals to put out the best product for the best price. They have

Who Bears The Cost Of Quality (Total Quality Management)

1003 words - 4 pages costs can be difficult. The cost of lost sales, of responding to customer complaints, of process downtime, of operator testing, of quality information and of quality planning and product design are all costs which are difficult to measure. These costs must be estimated by the management. Training costs, inspection and testing costs, scrap costs warranty claim and liability costs can usually be measured.The Japanese first realized that the costs of