Cost Management

IMA Advanced Management Accounting,CIMA考试管理级等级中高级管理会计，同时也适用于自己对于管理会计内容的自学

Cost Planning

• Target costing
  • general understanding
    • Calculation of the target cost is usually achieved by taking the expected selling price and deducting the desired profit margin.
    • the target cost is a maximum production cost target set by the organisation
    • It is particularly effective during the design stage of a product as once this stage is completed, less can be changed to affect costs.
  • Cost gap
    • Target cost gap = Estimated product cost – Target cost
    • Closing the cost gap
      • 可以使用value engineering (which is a method to improve the value of goods or services, by either improving function or reducing cost)
      • certain options
        • Using cheaper materials
          • be careful not to give up too much quality when looking for cheaper materials.
        • Using cheaper labour (lower skilled)
        • Increasing volume of production
      • It's very important that the measures used to close the cost gap do not reduce the perceived value of the product to the customer!一定不能减少顾客的perceived value
  • Why target costing?
    • what is so different about target costing than any other form of costing?
      • the difference is that the target cost is planned at the very beginning of a product’s creation, meaning that the product can be designed with the right costs in mind.
    • benefits of target costing
      • Avoid unnecessary ‘features’
      • Develop product designs
      • development of production processes
    • Remember, deciding NOT to go ahead with something is always an option.
  • Target costing in service industries
    • The key to target costing in product and service industries is to identify the needs of the customers and to produce goods or service that meets these needs发现需求，满足需求
    • Problems with target costing in service industries
      • Measured in terms of performance rather than tangible goods
      • The output (performance) is likely to differ from job to job based on the bespoke nature of the task and level of human input
      • Services are consumed at the same time they are produced and therefore cannot be stored liked goods
    • Due to these factors above, accurately calculating the target cost can prove difficult in service costing.
• Value chain
  • methods to increase value
  • Porter’s value chain
  • Using the value chain
    • To examine the organisation
    • As a basis to drive a competitive strategy of cost leadership or differentiation.
    • Understanding the links between processes
    • As a way to analyse competitors
• Value analysis
  • general understanding
    • Value analysis is a cost management method，involves a continuous and consistent approach to keep costs down
    • The aim is to review the factors that affect the cost of a product or service in order to improve profitability whilst maintaining the same level of quality and perceived value from the consumer.
    • identifying where value is gained or lost and suggesting suitable courses of action.
    • Value analysis is normally conducted after production has started.
  • The value analysis process
    • Establish consumer needs
      • What exactly does the customer want? How much will they be willing to pay for your product?
    • Investigate alternative courses of action
      • Once a valueless activity has been identified, a company must then decide what to do with it.
    • Decide on alternative
      • Once all alternatives have been explored, a decision must be made on which one to pursue.
      • the alternative that cuts cost furthest whilst maintaining value would usually be considered to be the most suitable alternative.
    • Evaluation
      • Has this new course of action been worthwhile?
• Value engineering and functional analysis
  • Value engineering
    • Value engineering is the process in which a new product is designed with value analysis in mind. It normally happens before production begins or during a product redesign. The aim is to enhance the value to the customer whilst reducing costs.
  • Functional analysis
    • functional analysis is concerned with reducing costs and maximising profits.减少成本并最大化收益
      • a functional analysis involves breaking every single element of a product down and assessing the consumer value of each individual section.
    • Like value engineering, it is often conducted prior to the production of a product or during a product redesign.
    • It pays particular attention to the customer and what the customer perceives to be valuable than value analysis, which is focused almost exclusively on reducing costs. functional analysis 是value engineering的一种方法，但是它更着重于顾客认为有价值的因素，这个是与value analysis的一个区别，另外他也更看重于减少成本