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Management and Cost Accounting: Colin Drury
Management and Cost Accounting: Colin Drury
AND COST
ACCOUNTING
SIXTH EDITION
COLIN DRURY
Chapter Twenty-two:
Cost management
• Many of the approaches that fall within the area of cost management do
not rely exclusively on accounting techniques
• LCC focuses on costs over the product ’s entire life cycle to determine whether
profits earned during the manufacturing phase will cover the costs incurred during
the pre-and post-manufacturing stages.
• Cost management can be most effectively exercised during the planning and
design stage.
Kaizen Costing
• ABM focuses on managing the business on the basis of the activities that
make up the organization — by managing the activities costs are managed in
the long term.
• Activity cost information is useful for prioritizing thos activities that need to
be studied more closely. Activities can be classified:
1. As value-added or non-value-added.
2. According to a scale similar to that advocated by Kaplan and Cooper.
• Activity-based systems can also be used to manage costs at the design stage
using behavioural drivers.
• Surveys also suggest that many organizations use cost driver rates as
measures of cost efficiency
Example
Example
1. Cost reduction
2. Simplification
3. Improved quality and enhanced customer satisfaction.
Cost of quality
• Increasing attention is also being given to continuous improvement with the aim
of zero defects.
• Non-financial measures and statistical quality control tools also play a key role
in improving quality and reducing internal and external failure costs.
• Objective is to perform value chain activities more efficiently and at a lower cost
than the competitors.
• Focus should be on each link in the chain from the customer ’s perspective.
• Critics claim that traditional management accounting starts too late and finishes
too soon in terms of the value chain.
Benchmarking
• Objective is to improve key activities/processes
• Compares key activites/processes with world-class best practices.
Just-in-time systems
JIT seeks to achieve the following goals:
• Zero inventory
• Zero defects
1. Emphasis on preventative maintenance and doing the job right first time.
• Zero breakdowns
• A 100% on-time delivery service