Quiz 1: Cost Management and Strategy


Basically, there are two types of accounting that is cost and financial. Both have different significance in the field of accounting. But out of which cost accounting plays an important role in the pricing of the product, and helpful in various planning and strategies for the decision making process. Accurate and timely report set the way for the firm and this could help in various way to the organization regarding decision of cost of product, pricing decision, inventory decision, and balance sheet impact and so on. Basically cost management information is implemented in the organization to make effective strategy. It consists of both financial information and non-financial information that is financial information about cost and revenues, while non-financial information about customer retention, quality of the product and other key factor for the organization. There are basically two attributes or features of the cost information: Data must be provided timely Data must be accurate Both the feature are important for the decision making process of the company. Cost information should be accurate and timely provided to the management for their decision purpose. It is well known that inaccurate data may leads to various serious impact on the decision and also have long term implication. Cost management information Basically the management provides cost management information to the chief financial officer (CFO), other managers, and the employees of the organization to use the information for the firm to make more competitive and successful. For that there are four effective management functions are employed to achieve the objective: Strategic management Planning and the decision making Management and operational control Preparation of the financial statements Strategic management It is most significant function of the management in which programs are development in such a way to win the policy and planning of the competitors in the effective manner and help to continuous successes. Under this action plans are made and implement in order to raise the success rate over the competitors. Example: Cost management information provides a sound and effective decisions regarding the product choice, quality of the product, methods of manufacturing of product, various marketing techniques, different types of distribution channel, and all other related matters which is necessary for the organization objective to fulfil the target in time and also with accuracy. Planning and the decision making The next step in the cost management information is planning and the decision making which consists of cash flow management, profit planning and the budgeting decision, decision relates to the operation of the business, decision regarding replacement of the equipment, proper scheduling of the pricing and the production. All these decision are taken for the betterment of the organization and by considering the long term prospectus. Example: While taking the planning and the decision making process there are various decision are to be taken regarding lease or buying the equipment, decision regarding replace or repair of the equipment, decision regarding the change a marketing plan and decision regarding the when to develop a new product, all these are helpful in making a plan for the future and also to overlap the competitors. Management and operational control This is the third type of function control in which efforts be made to effective operation activities in such a way to motivate the effective managers for their performance and correct decision for the betterment of the organization. As there is coordination of all the activities from lower to middle and to the top level of management. Example: Under the management control upper levels of management is supervised or review the activates of the mid-level managers for controlling purpose and also for the operational control mid-levels manager like product managers, site managers, and regional manager looks or overview the activities of the operating levels manager and the employees like various department heads and production supervisors. So from both the end operation and the management level control is being initiated. Preparation of the financial statements It is to be observed that for the cost management information it need to provide proper data for inventory and the other assets which help to preparation of the financial reports. As it is important for the planning, decision making and the strategic management of the organization. Example: Financial statement help to the management in various management compliances for the reporting purpose like financial accounting standard board and the relevant federal government authorities (internal revenue service and the securities exchange commission). Similarly financial statement serve the other three function and the cost management information help to provide these data in timely and the accurate way.

Normally, no doubt cost management information plays an important role in the firm and also for the industry in making plans and the strategy for the future and making various decision making process in order to win over the competitors. But there are certain areas where cost management information is irreverent for the firm and also not impact upon the industry as a whole. If the firm not utilized their full capacity than information regarding cost is not significant on the ground that cost is ascertained on bases of full utilization of the capacity. So here cost management information is not complete and not useful for the decision making purpose. Cost information is correct only when all the financial expense are to be considered but certain financial expenses are not included so exact cost is not determined and accordingly, management cannot provide proper information on the cost to the relevant or concerned authorities. Cost management information is also feel helpless in those firm where work study, time study, motion study and the operation research are the key factor for the decision making process not in the present but also for the future. There is need for continuous and improved cost information all the time but there is rigid in the information than management, and other related parties does not enjoyed the information which is rigid and is not useful. Sometimes, it may misleads to the investor on the ground that fixed cost is not to be deducted from the revenue unless all the manufactured product are sold. And also data is to be misled by showing contribution margin of the firm rather than showing all the cost. Over absorption and the under absorption is also one of the major concerns for the proper information but this may lead to insufficient and also firm is not get benefit from the cost management information.

Cost management Cost management means management of the cost that is it is the process of estimating of the cost, allocation of the cost, and controlling of the cost of the project. The aim of the cost management is to predict the expense related to the project and effort made to control over the cost and kept under the budget. Cost management is important for every concerned who is involved in the project. Without the cost management company will suffer losses and also customer will not obtained the product at reasonable price. As we can say that cost management set the way for the firm. There are various person who is held responsible for the cost management in the organization. The person set the baseline for the cost of the project and ensure that project is being under budget. Chief financial officer (CFO) is the person who delegates all the responsibility to the controller is held liable for the cost management, as if there is any discrepancies arises. Every employees, worker and the concerned person who work under the controller is held liable for the cost and also management of cost is key to success for the organization. Parties which are relates to the project like project leaders, project managers and the senior project manager is held liable for the cost of the project who are developer of the project and from the starting involved in the project is responsible for the management of the cost of the organization. It is the cost which when added to the profit we get price of the product and that price of the product is must be under control with that of competitors, as customer always requires more quality from the product at least cost. It is to be observed that cost set the way for the firm for the future, so it must be under control and from time to time it must be analyzed and efforts taken to control theses cost under the budget. It is also analyzed that time overrun of the project leads to the cost overrun of the project. Hence, it is not only those person who involved in cost but also those person who runs the project and if project is completed than find whether cost is under budget or not, but if project delay than direction of the analysis is changed and tried to catch those people who is held responsible for the delay in the project due to this also cost increasing.

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