Thursday 10 May 2018

Cost Management

Cost Management

Cost Management the system is designed to provide information for management to identifying opportunities refinement, planning strategies, and making operational decisions regarding the procurement and use of variety resources required by the organization. The cost management comprises all the tools, techniques, and methods which together form a system of cost management. Integrated cost management system shows that there is a mutual relationship with other system elements, namely:

  1. system design and development,

  2. The system of purchasing and production,

  3. Customer service system, and

  4. Marketing and distribution system.

The cost management system based on a few basic concepts which are:

  1. The Concept of Value Added

Is the concept that explains that the company should seek executing activities with value-added efficiency is worth perfect and eliminate activities that don't add value.

  1. The Concept of Accounting Activities

Is the process of collecting and tracking the financial performance and operations regarding the significant activities of the company and the provision of feedback between the real results with planned determination and correction action if required? Activity-based costing (ABC) is a methodology for measuring the cost and performance of activities, resources, and cost objects.

  1. The Concept of Target Cost

A market-based fee is calculated using market price necessary to achieve a market share that is specified in advance. Cost target = market price to achieve market share – Profit is expected. Determination of target cost management is a tool to reduce costs over the life cycle of a particular product.

The objectives of cost management system can be classified into four areas, as follows:

  1. Identifying the cost of activities

  2. Determine the efficiency, effectiveness, and economic activities

  3. Fine-tune future performance

  4. Reach the destination third together in an environment of technological change

Benefits Cost Management System help management to:

  1. Planning and control of the Organization,

  2. Improving traceability cost,

  3. Manufacturing performance life cycle,

  4. Making decisions, investment management

  5.  Measure the performance,

  6. Supports Automation and philosophy

Cost principles include the cost for the management system must:

  • Identify the costs of value-added and not.

  • Track directly costs not value-added activities.

  • Track directly significant costs on the purpose reporting costs.

  • Specify the cost center for any group activity homogeneity.

  • Improving traceability of costs using the ABC system.

  • Developing cost drivers to show cause and effect activities and costs,

  • Collect the cost of the life cycle of the product,

  • Charge technology,

  • The actual costs compare with the cost of the target,

  • Using a cost effective (cost-effective) for internal control.

The principles of performance measurement require that the Cost management system to measure performance:

(a) in accordance with the objectives of the Organization,

(b) significant activities,

(c) to improve the visibility of drivers costs,

(d), which includes the financial activity and not finance.

Principles of investment management requires management system costs for:

(a) examine the proposals carefully investment,

(b) make investment decisions consistently with the objectives of the Organization,

(c) evaluate investment decisions using criteria,

(d) consider the risks of investment,

(e) track the activities of each investment opportunity,

(f) support a reduction or no value-added activity her elimination, and

(g) support the achievement of the target cost.

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