Comprehensive cost management and control methods

Basic methods to strengthen comprehensive cost management and control: activity costing and activity cost management. Traditional cost management focuses on the production cost of products. With the rise and prosperity of the service industry and the development of technological innovation, the increase in the proportion of service costs cannot be ignored. Traditional cost management cannot effectively solve this problem. Distorted cost allocation will produce wrong decisions and inaccurate valuations, while comprehensive cost management uses cost driver analysis to perform job cost calculations in order to allocate costs to cost objects more accurately.

Cost driver theory believes that cost is essentially a function, which is the result of the combined force of various independent or interacting factors (independent variables). In total cost management, drivers are factors that cause changes in resource utilization, job output, costs, and revenue. Total cost management uses the relationship between costs and cost objects to help increase the accuracy of cost allocation. Costs are directly or indirectly related to a cost object. Indirect costs are costs that are not easily traceable to a cost object. Direct costs are costs that are easily traceable to a cost object. Traceability, on the other hand, is the ability to allocate costs directly to cost objects in an economically sound manner through cause-and-effect relationships. The more costs that can be traced back to a cost object, the more accurate the cost allocation will be. The traceability thus established is a key factor in establishing an accurate way of allocating costs.

In comprehensive cost management, there are two ways to trace costs to cost objects: direct tracing and driver tracing. The direct traceability method identifies and allocates costs that have a specific or physical connection with the cost object. The driver retrospective method uses drivers to allocate costs to cost objects. Although not as accurate as the direct tracing method, as long as the causal relationship is correct, the agent tracing method is also very accurate.

The driver traceability method uses two types of drivers to trace costs to cost objects: resource drivers and activity drivers. Resource drivers measure the resource requirements of activities and are used to allocate resource costs to activities. Activity drivers measure the cost object's need for activities and are used to allocate activity costs to cost objects. The driver traceability model is activity costing, which is the core of the cost allocation method. Activity-based costing allocates costs to cost objects by first tracing the costs to the activity objects and secondly to tracing the costs to the cost objects. Activity-based costing originated from the accuracy motivation of commodity cost calculation, but its actual significance has completely exceeded the initial design requirements. It goes directly into the reconstruction of the enterprise's value chain and even the reconstruction of the enterprise's internal organizational structure. However, activity-based costing is only the basis for understanding the value chain. Only activity-based cost management can transform and optimize the enterprise value chain. Activity-based cost management is a management method that uses the information provided by activity-based cost calculation to transfer the starting point and core of cost management from the "commodity" to the "operation" level. The basic idea of ??activity-based cost management: an enterprise is a collection of closely related operations that are run to ultimately satisfy customer needs and maximize investor remuneration value. The enterprise produces goods or provides labor services that consume operations, and operations consume resources. The consumption of resources is also the accumulation process of value, that is, the value is transferred from one operation to the next, and finally all accumulated into the final goods or services. The final goods or services are both a collection of all operations and a collection of all values. Therefore, the operation chain also appears as a value chain. The value recovered from customers who purchase goods or receive services forms the revenue realized by the enterprise. The difference between the income and the total value of the resources consumed in completing the relevant operations is the company's profit. However, in fact, not all companies can increase the value transferred to customers and bring profits to the company. Activity-based cost management requires cost management to be in-depth at every level. One operation, try to eliminate operations that cannot create value, prevent the consumption of resources, and maximize the value recovered from customers to achieve predetermined business goals.

Activity-based cost management is carried out in a three-step cycle of activity analysis, cost driver analysis, and performance calculation. The design and operation of activity-based cost management must consider the requirements of three aspects: activity analysis, cost driver analysis and performance calculation, and organize and connect them in order and in a cyclical manner.

Activity-based cost management regards the enterprise as a collection of a series of operations designed to meet customer needs. Enterprise products condense the value formed in each operation and ultimately transferred to the customer. The operation chain is also represented as value chain. As a result, the focus and emphasis of cost management has been shifted from the traditional "commodities" to "jobs", with jobs as the cost allocation objects. This not only can reasonably allocate various manufacturing expenses and provide more objective cost information, but also can pass the jobs Analyze and trace the root cause, continuously improve operating methods, rationally allocate resources, and achieve the goal of continuous cost reduction. Therefore, activity-based cost management can well adapt to the objective requirements of cost management in the high-tech economic and technological environment.