current trends in cost & management accounting
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Group Members
Pooja Kulkarni – B 31 Ravi Dongre – B 16 Tushar Sadhye – B 47 Sneha Dixit – B 15 Shweta More – B 36 Nikita Rathod – B 46 Sayali Phatak – B 44
Content Covered
Cost & Management Accounting & Types of costs involvement.
Direct costing as an analysis tool & Cost volume profit analysis.
Target costing & Cost object analysis. Process analysis & Zero base budgeting. Cost reduction strategy & Compensation cost reduction. Procurement cost reduction & Responsibility
accounting. Facilities cost reduction & Finance cost reduction.
Cost management
Cost management is a form of management accounting. Cost management is the process of planning and
controlling the budget of a business which related to activities achieved by collecting, analyzing, evaluating and reporting cost information used for budgeting, estimating, forecasting, and monitoring costs.
Types of Cost
Fixed cost Variable cost Marginal cost Actual cost Direct cost Indirect cost Economic cost
Direct costing as an analysis tool
Direct costing is a specialized form of cost analysis that only uses variable costs to make decisions. It does not consider fixed costs, which are assumed to be associated with the time periods in which they were incurred.
Direct costing is of great use as an analysis tool. The following decisions all involve the use of direct costs as inputs to decision models.
Automation investment Cost reporting Customer profitability Profit volume relationship Outsourcing
Cost–volume–profit
Cost–volume–profit (CVP), in managerial economics, is a form of cost accounting. It is a simplified model, useful for elementary instruction and for short-run decisions.
The components of CVP analysis are: Level or volume of activity Unit selling prices Variable cost per unit Total fixed costs Total costs – fixed costs +(unit variable cost * no. of units) Total Revenue = Sales price * no. of units Profit is computed as TR-TC; it is a profit if positive, a loss if negative.
TARGET COSTING
Target Costing is a pricing technique which can be defined as a tool to reduce the cost of product over a lifecycle with the help of design, engineering and technology.
A target cost is the maximum cost which can be charged for a product with earning of profits over the given selling price.
Target Costing in simple words involves setting a target cost after subtracting a good profit margin from the market price.
The objective of setting a target is to manage a business in an effective manner.
Target Costing is one of the most important tools for achieving constant profit in a highly competitive work environment.
STEPS OF TARGET COSTING
Defining the Product Set the Price and Cost Targets Achieve the Targets Maintain competitive Cost
COST OBJECT
A cost object is any item for which costs are being separately measured.
It is a key concept used in managing the costs of a business.
Types of Cost Object:- Output - The most common cost objects are a company's
products and services, since it wants to know the cost of its output for profitability analysis and price setting.
Cont…
Operational - A cost object can be within a company, such as a department, machining operation, production line, or process. For example, you could track the cost of designing a new product, or a customer service call, or of reworking a returned product.
Business relationship - A cost object can be outside of a company - there may be a need to accumulate costs for a supplier or a customer, to determine the cost of dealing with that entity. Another variation on the concept is the cost of renewing a license with a government agency.
Process Analysis
A step-by-step breakdown of the phases of a process, used to convey the inputs, outputs, and operations that take place during each phase.
A process analysis can be used to improve understanding of how the process operates, and to determine potential targets for process improvement through removing waste and increasing efficiency.
Process analysis involves two forms:-1. It can provide information about how something works
(informative)2. It can explain how to do something (directive).
Zero Base Budgeting
The Objective of Zero Based Budgeting is to “reset the clock” each year.
Zero Based Budgeting implies that managers need to build a budget from the ground up, starting at zero.
Budgets are then built around what is needed for the upcoming period, regardless of whether the budget is higher or lower than the previous one.
Steps involved in Zero base budgeting
There are three Steps involved in Zero Base budgeting :-
Identification of Decision Units Development Of Decision Packages Review and Ranking For Decision Making
Cost reduction strategies
Process ,systems and technological improvements.
Behavior modifications. Correction of billing errors. Elimination of overcharges & unnecessary
services. Rate reduction from current providers. Savings from alternate providers.
Compensation cost reduction
Get management behind it. Use modified duty. Understand what contributes to your workers compensation costs. Train your employees well. Actively put your policies into practice. Report claims promptly Investigate causes
Procurement cost reduction
5 trend in strategic procurement
Business Integration and Collaboration Importance of Technology in Procurement Centralization Supplier Collaboration Modern Procurement Organizations
Responsibility Accounting
Responsibility accounting is an underlying concept of accounting performance measurement systems. The basic idea is that large diversified organizations are difficult, if not impossible to manage as a single segment, thus they must be decentralized or separated into manageable parts.
1. Revenue centre-segment that generates revenue with little cost
2. Cost centre- segment generate cost but no revenue3. Profit centre-segment generates both revenue and cost4. Return on investment -a segment such as a division of a
company where the manager controls the acquisition and utilization of assets, as well as revenue and costs
Facilities cost reduction
7 Trends in facilities cost reduction :-1. Doing more with less.2. Automation.3. Outsourcing.4. Increasing complexity.5. Value-driven design.6. Energy conservation.7. Short term staffing.
Finance cost reduction
5 trends in finance cost reduction:- Cloud computing solutions. Supply chain management. Being prepared for risky times. Go paperless. Latching on to BYOD {Bring your own device} trend.