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Basic Cost Management Concepts

Cost management concepts involve identifying key costs and cost drivers to achieve competitive advantage. Costs are incurred when resources are used and are assigned to meaningful cost pools by type or responsibility. Cost drivers are any factors that change total costs, and cost objects are products, services, customers, or units assigned costs. Careful management of key cost drivers is essential for firms competing on cost leadership.

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56 views1 page

Basic Cost Management Concepts

Cost management concepts involve identifying key costs and cost drivers to achieve competitive advantage. Costs are incurred when resources are used and are assigned to meaningful cost pools by type or responsibility. Cost drivers are any factors that change total costs, and cost objects are products, services, customers, or units assigned costs. Careful management of key cost drivers is essential for firms competing on cost leadership.

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BASIC COST MANAGEMENT CONCEPTS

A critical first step in achieving a competitive advantage is to identify the key costs
and cost drivers in the firm or organization.

COST
-is incurred when a resource is used for some purpose
For example, a company producing kitchen appliances uses certain resources,
the costs of materials (such as sheet metal and bolts for the enclosure), costs of
manufacturing labor, and other costs.
-Assigned into meaningful groups called cost pools
COST POOLS
-assignment of costs into meaningful groups
by type of cost (labor costs in one pool, material costs in another)
by responsibility (manager 1, manager 2)
COST DRIVER
-is any factor that has the effect of changing the amount of total cost .
For a firm that competes on the basis of cost leadership, management of the key
cost drivers is essential. For example, to achieve its low-cost leadership in
manufacturing, P&G carefully watches the design and manufacturing factors that drive
the costs of its products.
COST OBJECT
-is any product, service, customer, activity, or organizational unit to which costs
are assigned.
Ex. Products, services, and customers are generally cost objects

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