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Summary Cost Management
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Summary of the book Cost Management
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By: joostitovank • 1 year ago
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Ch 1 – Cost management & strategic decision makingCost management in a decision-making framework:
Stage I: Setting goals & objectivescriteria
- Strategy: where do we want to go and how do we want to get there?
- Competitive advantagesthreats: Porter’s five forces model
Stage II: Gathering informationalternatives
- Financial & non-financial criteria
- Quality: accuracy, timeliness, relevance
Stage III: Evaluating alternatives
Stage IV: Execution & tracking costs
- Benefit-cost analysis: effects of a plan measured quantitative or qualitative
Stage V: obtaining feedback
Eight elements of leading and managing change:
1. Identify a need for change
2. Create a team to lead and manage the change
3. Create a vision of the change and a strategy for achieving the vision
4. Communicate the vision and strategy for change and have the change team be a role model
5. Encourage innovation and remove obstacles to change
6. Ensure that short-term achievements are frequent and obvious
7. Use successes to create opportunities for improvement in the entire organization
8. Reinforce a culture of more improvement, better leadership, and more effective
management
Ch 2 – Product costing concepts & systems
Total costs = direct costs + indirect costs (same: overhead/burden)
Accrual cost: historical measure of value of resources
Opportunity cost
Variable vs. committed costs (policies/contractual obligations)
Fixed costs: matter of scale of decision-making
Sunk cost: historical price paid, often in accrual cost
Product cost: historic cost of product (inventory, re-sell)
If it’s not a product costperiod cost
Gross margin ratio = (sales turnover / cost of sales) / sales turnover
Return on sales ratio = operating income (gross income - expenses) / sales turnover
Period costsperiod expenses
Beginning balance + transfers-in – transfers-out = Ending balance
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