The Cost-Management Analysis in the Organization

The Role of the Cost-Management Analyst in the Organization of the 21st Century

The article Look out, management accountants is about the significance of cost accountants in organizations. The article highlights that the cost accountants are highly beneficial in any firm that aims at managing costs and increasing efficiency. Here, cost accountants integrate the various methodologies, which help in management of costs, improving activities and efficiency in a firm. Cost management analysts usually concentrate in some key areas such as stock management or arranging organizational structures to get rid of unwanted activities. However, although there are various techniques that cost analysts employ in the management of costs, they should not take this as a growing opportunity in an entity, but they should strive to offer their best support services (Robin, 1997).

Definition of Terms

  1. Kaizen costing – Is a gradual and a continuous process aimed at reducing costs of a product under production.
  2. Kaizen budgeting – Is a cost budgeting method, which incorporates the costs of unforeseen improvements. The main aim of Kaizen budgeting is to reduce actual costs below the predetermined costs (Shim, Siegel & Shi, 2011).
  3. Product costing – Is a management methodology used to establish the cost of a unit of a product or service (Maher & Marais, 1998).
  4. Target costing – Is the cost at which a product must be produced so that it can yield certain gains when sold at its perceived future selling price.
  5. Target price – Is the value at which the producer anticipates that a buyer will pay for the product or a service.
  6. Throughput – Is the rate at which a production system produces products or services per unit time.
  7. Supply chain – Is the whole system of organizations, activities and other resources that are involved in the transporting a product or a service from the producer to the consumer.
  8. Absorption costing – Is a cost accounting method where all those costs that change with the level of activity plus all fixed costs are taken as product costs while non-production costs are taken as period cost (Cooper & Kaplan, 1998).
  9. Variable costing – Is a cost accounting method where only those costs that change with the level of activity are considered as product cost while all fixed production costs are taken as period costs (Noreen & Soderstrom, 1994).
  10. Ide time – This is the time when although an employee is rewarded, no production takes place due to reasons such as machine breakdown, lack of materials or poor planning of work.
  11. Value chain – Is a series of direct and indirect activities, which are involved in transforming inputs into valuable outputs. These include activities such as product research, product design, product distribution, product marketing and after sale services.
  12. Profit center – Is an identifiable unit that contributes to the overall profits of a firm.
  13. Cost center – Is an identifiable unit within a firm where direct and indirect costs are allocated.
  14. Fixed cost – Is a cost that remains unchanged even as the level of activity changes. These are costs such as rent and interest.
  15. Variable costs – Are those production costs that change with the level of activity. They include direct labor and materials.
  16. Mixed cost – Is a term used to refer to both fixed cost and variable cost (Anderson, Banker, Huang & Janakiraman, 2007).
  17. Investment center – Is a section within an entity charged with costs, revenues and investments. The performance of an investment center is determined by calculating the return on investment attained (Lucas, 1967).
  18. Break-even analysis – Is a cost accounting methodology used to establish the amount of units that should be sold in order for a business to register profits. It involves classifying costs into fixed costs and variable costs (Banker & Chen, 2006).

References

Anderson, M.C., Banker R., Huang R. & Janakiraman, S. (2007). Cost Behavior and Fundamental Analysis of SG & A Costs. Journal of Accounting Auditing and Finance. 22 (1): 1-28.

Banker, R. D. & Chen, L. (2006). Predicting Earnings Using A Model Based on Cost Variability And Cost Stickiness. The Accounting Review. 81 (2), 285-307.

Cooper, R. & Kaplan R. (1998). The Design of Cost Management Systems: Text, Cases, and Readings. Upper Saddle River, NJ: Prentice-Hall.

Lucas, R. E. (1967). Optimal Investment Policy and the Flexible Accelerator. International Economic Review. 8 (1): 78-85.

Maher, M. W. & Marais M. L. (1998). A Field Study on The Limitations of Activity-Based Costing When Resources are Provided On A Joint And Indivisible Basis. Journal of Accounting Research, 36 (1): 129-142.

Noreen, E. & Soderstrom N. (1994). Are Overhead Costs Strictly Proportional To Activity?: Evidence From Hospital Departments. Journal of Accounting and Economics 17 (1-2), 255–278.

Robin, C. (1997). Look Out, Management Accountants. Management Accounting. 77 (11).

Shim, J. K., Siegel, J. G., & Shim A. I. (2011). Budgeting Basics and Beyond (eds 4.). New York: John Wiley and Sons.

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