Cost Management System

Cost Management System
Anggota Kelompok :
• Diana Airawaty 527970
• Siti Chusyaeva Alsyajidha 527997
• Nur hafirah 528001
• Muhammad Nur Afif Harness Putra 528119
• Riska Ajeng Hastiningrum 528190
1
Basic Concept
Cost planning Budgeting Cost recording
Cost analysis Cost control System development
Types of cost management systems

Traditional cost system Lean costing Target costing
Activity-based costing system
2
Cost Flows in Organizations
Manufacturing Organizations Service Organizations
Retail Organizations
3
Some Important Cost Terms
Cost Object Capacity-Related Resources
 anything for which a cost is  cost depends on the amount of resource capacity that is
computed. acquired and not on how much of the capacity is used.
 examples : products,  examples : depreciation on production equipment (the
product lines, departments, capacity-related resource)
or even entire organizations.
Direct & Indirect Cost
Consumable Resources
 direct cost is a cost that is uniquely and unequivocally
 also called a flexible resource attributable to a single cost object.
 cost depends on the amount of  any cost that fails the test of being a direct cost is an
resource that is used. indirect cost
 examples : wood in a furniture
factory and iron ore in a steel Going Forward
mill.  costing systems first classify costs as direct or indirect.
Cost Classification & Context  direct costs are assigned to the appropriate cost object.
 the classification of a resource  indirect costs are allocated to cost objects in a reasonable way,
(and therefore its cost) as direct or  which means that the allocation ideally should reflect the cause-and-
indirect is context specific. effect relationship between the long-run use of a capacity resource by a 4
cost object and the associated cost of that long-run use.
Handling Indirect Costs in a Manufacturing Environment
Costing System Structure Cost Flows in a Manufacturing Organization
Multiple Indirect Cost Pools Cost Pool Homogeneity

 to improve costing  Costing distortions can arise when indirect
 the ability of the costing system to more cost pools include costs that have different
accurately reflect the cause-and-effect cost drivers.
relationship between the cost object and
the cost of the resources used by the cost
object.
5
Overhead Allocation: Further Issues
Using Planned Capacity Cost
Reconciling Actual & Applied

Capacity Costs
Estimating Practical Capacity
Job Order and Process Systems

Job Order Costing Some Process Costing Wrinkles
 an approach to costing that estimates costs for specific
customer orders because the orders vary from Final Comments on Process Costing
customer to customer.  In practice, process costing is more complicated when production
involves multiple departments and defective (spoiled) production.
Process Costing
 however, the principles and the objectives remain the same:
 an approach to costing that is used when all products compute the cost per equivalent unit for each of the components
are identical. of manufacturing in order to identify where process improvements
(i.e., cost reductions) might be possible. Dealing with these more
complex issues is left to a more advanced course in management 6
accounting.
Activity Based Cost Systems
TRADITIONAL MANUFACTURING COSTING SYSTEMS
The cost system that was adequate when indirect expenses were low and product
variety was limited
ADVANTAGE DISADVANTAGE/ LIMITATION
Simple, easy to use and understand, and applied In an environment of high product
consistently from year to year. variety, the exclusive use of volume
drivers to allocate overhead costs leads
to product cost distortion
7
Activity Based Costing
The new cost system required estimating two parameneters, just like for labor and materials:
1. Cost rate for each type of indirect resource
2. Estimate of how much of each resource's capacity
With estimate of these two parameters for each resource and product, the cost assignment can be done
simply and similarly to that performed for direct materials and labor cost:
- Calculating resource capacity cost rates

- Calculating resource time usage per product
- Calculating product cost and profitability
- Possible Actions as a Result of the More Accurate Costing
8
Updating the ABC Model
 How to update, as needed, to keep curent with changes in the company's operation.
 Time driven ABC models can be modified easily to reflect such changes.
 Examples: learn production labor performs activities such packaging and shipping product or receiving orders
directly from customers, that were not identified for the original model.
 The capacity cost rate for the production employees has already been determined so the system can quickly
calculate the cost of the new activity by multiplying the time estimates by the capacity cost rate.
Time Equations
 Time driven ABC accommodates the complexity of realworld operation with time equations, a feature that enables
the model to reflect how particular order and activity characteristics cause processing times to vary. Examples:
processing a custimer's order.
 The time equation allows the details of particular orders to be captures simply and incorporated within the model.
Example: consider the activity of getting orders ready for shipment.
 Data for the time equations (order typers, method of shipment, and all other production characteristics) are
typically already in the company's enterprise resource planning system where the order has been entered.
 The time driven ABC model can accurately and simply reflect the variety and complexity in orders, product, and
customers.
9
Service Company
 Capacity cost rate
 Calculating the Time Equation for the Consumption of Broker’s Capacity
10
Implementation Issues
Lack of Clear Business Purpose
Poor ABC Model Design
Lack of Senior Management Commitment Individual and Organizational Resistance to Change
Delegating the Project to Consultants People Feel Threatened
11
THANK YOU!
12

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Cost Management System

Cost analysis Cost control System development

Types of cost management systems

Activity-based costing system

Multiple Indirect Cost Pools Cost Pool Homogeneity

Reconciling Actual & Applied

Estimating Practical Capacity

Job Order and Process Systems

ADVANTAGE DISADVANTAGE/ LIMITATION

- Calculating resource capacity cost rates

 Capacity cost rate

 Calculating the Time Equation for the Consumption of Broker’s Capacity

Lack of Senior Management Commitment Individual and Organizational Resistance to Change

Delegating the Project to Consultants People Feel Threatened

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