In times of uncertainty, organizations are examining ways to enhance cost efficiencies, by focusing on cost analysis and profitability analysis. The Key is....
NOTE : When using an integrated approach, such as Activity Based Costing that works on causal relations to allocate costs, changes in the level of activity will not lead to a proportionate change in total costs.This in turn calls for the need to analyze costs according to a cost hierarchy, focusing at four levels: unit, batch, product, company: * Unit: Unit level costs increase in proportion to the number of units produced (e.g. labour hours) * Batch: Costs increase in relation to the batch of units being produced (e.g. set-up or purchasing costs) * Product: Costs at this level are incurred irrespective of the volume of products or batches produced and might include costs like technical support, etc. * Company: Costs at the company level are incurred and cannot be assigned to products directly (admin and management) Finally, is worth noting that Kaplan differentiates between the cost of resources supplied and the cost of resources used >> (the cost of resources supplied = the cost of resources used + the cost of unused capacity.) And unused capacity is not entertained in a Strategic Cost Management framework. O2ibm |
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20100806
Strategic Cost Management
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