Cost management Flashcards
Life cycle costing
focuses on cost over the products life to see if profits earned during manufacturing stage will cover the cost
-large section of cost can be committed during the planning and design stage
-cost management can be most effective during this planning and design stage
Target costing
-focuses on managing cost during prodcut plan and design
supported by an accurate costing system using appropriate cause-and-effect cost drivers.
process of target costing
- determine the price consumers will pay
- deduct a target profit margin from target price to find target cost
- estimate actual cost
- if estimated actual cost exceeds the target cost, investigate ways of driving down actual cost- ireative process:
* tear down analysis
* value analysis
kaizen costing
applied during manufacture stage
-focuses on production processes whereas target costing focuses on the product
-aims to reduce costs of processes by a pre-specified amount relying onemployee empowerment.
ABM
Activity based management- focuses on managing the business on the basis of activities that make up the org
ABM stages
- identify major activities
- assign cost to cost centres for each activity
- determine cost drivers for each activity
ABM Classifcation
- Value added or non value added
- scale similar to BSC
make sure to minimize non value added activities e.g. accounting
Benchmarking
objective to improve key activites
compare with world class best
widely used in public sectors
league tables widely used
can result in dysfunctional consequences
Business Process Re-engineering
business process consist of a collection of activities that are linked together to achieve a specific objective
BPR involves
- cost reduction
- simplification
- improve quality and enchace customer satisfaction
Quality cost management
- prevention cost
- appraisal cost
- internal failure cost
- external failure cost
