Lecture 1+2 - Introduction to Cost management

Question 1

(!!!) Describe cost management in general

Answer 1

General:
- Procedure to calc. resource spending
- Based on valid cost data
- For all managerial possibilities
- Both accounting & economic perspective
- Combine Bookkeeping & non-financial
- Socio-technical
- Both financial & non-financial: More than numbers
- Earlier ad hoc
- Since need direct info on man. costs
- Data to understand reality for DM
- Seek factual based models
- Help argumentation
- Since scare resources
- Since larger firms, long LC & mass prod.
- Actions to align & optimize costs
- Different decisions –> Different costs

Elements:
- Management style
- Role of the accountant
- Cost reduction
- Organizational change

Question 2

What is the accounting & economic cost info?

Answer 2

Accounting cost info:

Cost objects:
- Divisions
- Departments
- Market segments
- Products
- Customers

Cost purposes
- Avoidable costs
- Irrelevant costs: Sunk costs
- Committet costs: LC cost analysis

Cost control:
- Budgeted costs
- Standard costs
- Target costs

Cost effective design:
- Product attribute costs
- Cost drivers

Performance appraisal:
- Benchmarked costs

___________

Economic cost info:

• Opportunity cost
• Basis for DM

Question 3

Describe different tools in cost management

Answer 3

Product costing method for DM:
- ABC
- Time-driven ABC

CM in IO-perspective:
- The value chain
- OBA
- Customer profitability

Cost management & strategy:
- Generic strategies

Question 4

(?) What was a secretary (later comptroller), a treasurer & a president/committee on finance of board of directors accountable for?

Answer 4

Secretary:
- Internal transactions
- Due control and supervision
- Transmit financial reports & documents
- Prepare statements when required

Treasurer:
- Reviewing internal transactions
- Send out dividends
- Send out interest payments
- External financing

President/Committee:
- Decide security amount to sell
- Decide size of dividends
- Focus on long range activities
- Allocate funds

Question 5

(!) Which problems did the enlarged administrative structure raise?

Answer 5

• Need for coordination
• Need for control
• Need for full information
• Need for clarifying authority
• Need for definition of duties
• Need for detailed, effective data
• Need for clear communication
• Need to trust workers act in best interest

Question 6

(?) What is the advantage of a divisional type of structure?

Answer 6

• Comparability of divisions
• More effective handling
• More flexible control
• Quicker decision making

Question 7

(!!!) Describe a business partner & a bean counter

Answer 7

Business partners:
- Man. accountant
- Understand accounting, costing & budgeting AND business, people & supply chain
- Help DM
- Active
- Help always evolve environment
- Engage with reality & firm
- Communicate numbers & their meaning
- Understand problem & convert it into valid method to monetarize solution to problem: Require philosophy since hard if no objective truth
- Take part in strategy forming

A bean counter:
- Passive
- Only produce numbers
- Leaves interpretation of numbers
- Dont direct engage in business
- Dont direct engage in DM

Question 8

(!) Describe the most important authors

Answer 8

Zakken Worre:
- Capacity costs: Specific or united (direct/indirect)
- Divisibility

Vagn Madsen:
- VA
- Natural cost hierarchy
- No arbitrary allocation
- 5 Dimensions

Schmalenbach:
- Payment - Expense - Cost

Gutenberg:
- Cost = Consequence of decision
- Time + Intensity + Quality
- Cost formula

Copper & Kaplan:
- 4 Stages
- ABC

Goldratt:
- Theory of constraint

Schmidt:
- Replacement value

Mouritzen & Thrane:
- IOR

Kilder & Plaut:
- CBR + GPK

Shank & Govindajaran:
- Strategic cost management
- Structural & executional cost drivers