Cost Management: A Strategic Emphasis 5th Edition by David Stout, Edward Blocher, Gary Cokins

Exercise 49

Interpreting Average Cost

Recently the American Institute of Certified Public Accountants (AICPA) and the Hackett Group, a consulting firm, partnered to study the trends in the nature and amount spent on the accounting function in corporations. A key finding was that the world’s best accounting departments were able to function effectively at relatively low cost; these department’s total costs were only about 1 percent of their firm’s total revenues. In contrast, less efficient accounting departments required on the average 1.4 percent of total revenue, 40 percent higher. The world-class accounting departments were also faster in preparing regular financial reports (less than two days for the best departments, compared to five to eight days for the others). The study also found that larger firms spent less on accounting:

Manufacturing Firms	Finance Cost as a Percent of Total Revenue
Firms with less than $1 billion in revenues	1.6%
$1 billion to $5 billion	1.4%
More than $5 billion	1%
Service Firms
Less than $1 billion in revenues	2.1%
More than $1 billion	1.6%

Required Give a brief critical review of these research results. What questions would you have for the researchers who presented these results?

Step 1 of 2

The average cost is the total manufacturing cost divided by the total units of output. The total manufacturing cost included material, labor, and overhead expenses.