Three Requirements for an Effective Cost Management System
15
Three Requirements for an Effective Cost Management System by 3C Software
-
Upload
3c-software -
Category
Business
-
view
18 -
download
0
Transcript of Three Requirements for an Effective Cost Management System
Three Requirements for an Effective Cost
Management Systemby 3C Software
3csoftware.com
Why is Cost Management Important?
It provides visibility so that business leaders can draw insights and predict future outcomes.
Cost accounting and management is one of those business functions that crosses department lines, and alignment between front-line employees, managers and executives in each department is critical for the success of any enterprise-level cost management process to work.
“Do you know what we think of our cost accounting system? It is a bunch of fictitious lies – but we all agree to it.”
- Activity-Based Cost Management: An Executive’s Guide by Gary Cokins
3csoftware.com
Three Requirements of an Effective Cost Management System
Complete View of CostsExposing the detailed and complex nature of manufacturing costs is a critical first step.Multiple Cost SetsThe ability to compare multiple cost sets can expose problems or advantages that exist in the manufacturing process.Full System IntegrationAccess to needed information across finance and operations systems is necessary to calculate accurate and detailed cost results.
3csoftware.com
Complete View of CostsWhen calculating manufacturing costs, it’s not smart to stop with just product costs. Including logistics and distribution costs and the cost-to-serve provides a complete view of costs from raw materials to customer delivery.
Product Costs
Logistics and Distribution Costs
Cost-to-Serve
Wondering how some of the world’s most recognized brands manage their
costing process?
Click Here
3csoftware.com
Product Costs The materials and labor required to convert raw materials into finished goods. When products have complex production processes and they are produced in multiple locations, it is impossible to have only one product cost. Effective cost management systems will allow you to maintain multiple product costs for an item based on any set of factors that influences costs.
Complete View of Costs
3csoftware.com
Logistics and Distribution Costs The costs to deliver products to the end customer can comprise a significant portion of the overall cost of a product. It is important to assign these costs accurately to determine a product’s profitability.
Complete View of Costs
3csoftware.com
Cost-to-Serve Accounting for business activities like sales and marketing, receivables, and customer support is an important factor in establishing the profitability of each customer.
Complete View of Costs
3csoftware.com
Multiple Cost SetsEach company has unique requirements that dictate the number of cost sets needed. The four cost sets discussed here are the most typical types used by manufacturers. Comparisons between cost sets yield variances that can provide insight into how the company is performing.
Frozen Standard Costs Current Standard Costs
Actual Costs Going-to Standard Costs
3csoftware.com
Frozen Standard CostsTo ensure consistency, frozen standard costs are the basis for any cost comparisons. Frozen standards allow companies to compare budgeted versus actual spending. These standards are usually set annually based on current supplier prices and market conditions and are usually stored in ERP or data warehouse systems for financial reporting.
Multiple Cost Sets
3csoftware.com
Current Standard CostsCurrent standard costs are much more fluid than frozen standards. These costs are the production costs occurring today based on current raw material prices, production efficiencies and utilizations, and other changing business conditions. Current standards are used to predict spending for the period and inform immediate business decisions.
Multiple Cost Sets
3csoftware.com
Actual CostsThis cost set is the ultimate indicator of cost performance. Once finished goods are produced, actual costs are the tally of what was spent to produce them. It is a historical view of production that aids in predicting future costs.
Multiple Cost Sets
3csoftware.com
Going-to Standard CostsAnalyzing past costs is useful, but predicting what will happen in the future is equally valuable. Going-to standard costs are an estimation of costs based on anticipated orders and is useful for building budgets for future periods.
Multiple Cost Sets
Need Scenario Analysis capabilities?
Click Here
3csoftware.com
Variance AnalysisCalculating variances between the different cost sets gives a true indication of the company’s performance by exposing problems need a solution or opportunities that can be exploited.
Multiple Cost Sets
3csoftware.com
Full System IntegrationFor many organizations, production and financial data lives in multiple, disparate systems. By fully integrating financial, accounting and production data, integrity is maintained, potential errors are reduced, and the depth of analysis is deeper.
3csoftware.com
Need Help?ImpactECS by 3C Software is a comprehensive and dynamic cost and profitability modeling platform. It combines the features and functionality of a robust financial system with the flexibility and end-user control of traditional spreadsheet tools.
Learn more about ImpactECS:
www.3csoftware.com
