In this article, you’ll be introduced to the cost management and gain a deeper understanding of common business accounting systems. Show One of the key findings of Deloitte’s 2019 annual global cost management survey was that if companies want effective cost management, they need to have in place:
Read: Cost management practices and trends in Europe and Belgium [1] The general consensus is that companies without a strategic imperative struggle to effectively manage costs. Over the past few decades, competitive pressure from the exponential growth in information technology, manufacturing technology, and service sectors has transformed how businesses operate. These major changes in the global economy have prompted the development of relevant and sustainable cost management practices. Cost management and decision-making play a major role in improving business performance. Careful cost analysis helps managers, analysts, and business owners to determine total costs and helps clients to determine their expected invoice. Cost management sets the preface for business costs and governs the actions to track the budget, to avoid going over budget. Cost-management decision-making creates a drive for better value at lower cost, to ensure projects are completed on time and are aligned with set goals and budget. Accounting systemsCost management systems help you to better manage business processes and customer needs. Let’s look at some related accounting systems that play important roles within the cost management information system. Cost accountingCost accounting:
ObjectivesThe objectives of cost accounting include:
Cost accounting provides data for periodical income statements and balance sheets, and actual figures to compare with estimates for different periods. Analysing this information helps business managers with effective decision-making. ScopeThe scope of cost accounting includes:
Collecting, analysing, and measuring costs can be done either by post costing or continuous costing. Post costing uses actual costs, whereas continuous costing analyses costs after an activity is completed. The scope of cost accounting also includes examining individual cost elements using a standard for each cost item and identifying variances. It also involves reviewing monthly or quarterly statements that reflect the cost and income data for an identified sale for that period. Cost accounting helps you to identify cost-effective solutions, informs decision-making, and facilitates cost benefit analysis. Management accountingManagement accounting:
Management accountants need effective communication skills to influence decision-making. Management accounting was once part of cost accounting, but over time it evolved in function and scope. The terms are still often used interchangeably. There are some underlying differences between the two, however, that you might want to consider before applying them to your business strategy.
Read the following article if you would like more information on the evolution of management accounting. Read: The origin and evolution of management accounting: A review of the theoretical framework [3] Financial accountingFinancial accounting is an accounting subsystem that:
This video explains the similarities and differences between financial and management accounting. This is an additional video, hosted on YouTube. Here’s a summarised version of the similarities and differences discussed in the video. (Click to enlarge this image)References
What does a cost management system provide?Cost management is the process of planning and controlling the costs associated with running a business. It includes collecting, analyzing and reporting cost information to more effectively budget, forecast and monitor costs.
How is cost management information used?Cost Accounting Control
Accounting Management will use cost information for purposes such as: Making decisions and planning future operations with the knowledge of the costs of projects, programs, and other activities. Assisting in establishing company performance standards based at least partially on past cost history.
Why is cost management information important?It makes it possible to reduce costs and increase the profit margin, as it allows identifying unnecessary expenses that are not generating return, as well as better investment opportunities.
Which costing provides valuable information for managerial decision making?Cost accounting provides data for periodical income statements and balance sheets, and actual figures to compare with estimates for different periods. Analysing this information helps business managers with effective decision-making.
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