ANVESAK

ISSN: 0378-4568 UGC Care Group-I Journals

A STUDY OF COST MANAGEMENT SYSTEM AND ITS IMPACT ON
PRODUCTIVITY
Vandana Samir Mankar
Research Scholar, Mamasaheb Mohol College, Pune
Dr Neeta B. Kamble
Research Guide, Mamasaeb Mohol College, Pune

Abstract
Estimation, budgeting, and cost control are all steps in the process of cost management. This style of
management seeks to boost profitability and productivity inside an organisation. Understanding cost
management will make it easier for you to comprehend how a business determines and classifies
expenses in accordance with project needs and why it plays a crucial part in planning, regulating, and
decision-making. Different cost accounting techniques are used in cost management for businesses in
an effort to increase cost efficiency by cutting costs or at the very least limiting cost growth.
Keywords: Cost Management, Productivity, Efficiency, Techniques
Introduction
The primary goal of businesses is to maximise profit, which is made possible by strong management
techniques that may give managers all the information they need to make the best business decisions.
In this case, cost is a key factor to consider. Management necessitates special consideration.
Controlling all firm expenses through cost management is crucial for effective financial planning,
which includes managing cash flow and identifying the resources available for new investment. The
practise of organising and regulating a company's operating expenses is known as cost management.
In order to budget, anticipate, and monitor costs more accurately, it also involves gathering,
evaluating, and reporting cost information. Cost management techniques can be used for particular
projects or the business's overall operations. The company's entire operating model or particular
initiatives can both benefit from the application of cost control strategies. Cost management frequently
concentrates on making savings and increasing earnings over the long run. Since the start of the
industrial revolution, cost accounting has existed. Cost Accounting, however, is becoming more
significant today. Cost management makes it possible to lower costs and boost profit margins since it
makes it easy to spot wasteful spending that isn't producing a return and superior investment
opportunities.
Review of Literature
Cost Management: Control and Profitability https://catalogimages.wiley.com
Kaizen Cost Management Technique and Profitability of Small and Medium Scale Enterprises (SMEs)
in Ogun State, Nigeria: Research Journal of Finance and Accounting www.iiste.org ISSN 2222-1697
(Paper) ISSN 2222-2847 (Online) Vol 3, No 5, 2012: OLABISI Jayeola1* SOKEFUN, A. O. 1.
OGINNI, B.O.1.2 - The study examines the relationship that exists between Kaizen cost management
technique and profitability of small and medium scale enterprise in Ogun State, Nigeria. It evaluates
the nature of Kaizen cost management technique and how it can be adopted to reduce and control
operational costs of SMEs.
Use of Cost Accounting in cost management: Grzegorz Lew, Article in Prace Naukowe uniwerstetu
Ekonomicznego – January 2019

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Objectives
1) To understand the Cost Management System
2) To study the advantages of cost Management system
3) To study of impact on CMS on Productivity
Research Methodology
This Research Paper is a descriptive paper based on secondary data collected from different research
journals, articles.
Cost Management helpful for many business, an effective Cost Management is also important
because-
1) It makes it possible to keep tabs on the company's financial situation and uses this data to
inform decision-making that propels the business towards sustainable growth.
2) It improves the institution's financial planning, particularly by streamlining and effectively
planning and calculating expenditures.
3) It enables the identification of superfluous expenses that are not producing a return as well as
superior investment prospects, which raises the profit margin and allows for cost reduction.
Controlling a company's actual or anticipated costs is known as cost management. A corporation must
practise effective cost management otherwise it will struggle to continuously turn a profit. The easiest
way to implement this idea is through a formalised process that includes any or all of the following
steps:
1) Gather Cost Data: Actual Cost Data is normally gathered from the General Ledger, but it can
also be gathered using an activity-based costing system or other less formal data gathering
techniques.
2) Examine options for cost reduction: This stage may involve categorising expenses as fixed,
variable, or mixed costs, reviewing costs on a trend line, evaluating the effects on bottleneck
operations, and comparing costs to those of benchmark firms.
3) Report Results: Inform management of the analysis' findings and suggest next steps.
4) Install controls - Put in place controls to make sure that management-imposed changes are
followed as planned.
5) Keep an eye on changes: Keep an eye on any modifications that management imposes as a
result of this to observe how they affect the company's cost structure.
Cost control for upcoming activities
- Cost management operations are slightly different if a company is attempting to control costs for
upcoming projects like product design or the construction of additional offices.
Principal Elements of Cost Management
1. Cost projection
2. Cost Planning
3. Techniques for Cost Control and Cost Management:
1. Cost control and cost reduction - Cost control is a technique that provides the management
with the information they need to determine whether or not real costs are in line with
anticipated costs.

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2. We employed the cost-reduction technique to reduce the product's unit cost without sacrificing
its quality. Cost reduction focuses on lowering the price of a product per unit, whereas cost
control focuses on lowering the entire cost of manufacturing.
3. Activity-Based Costing (ABC) - ABC is a technique for allocating overhead and indirect
expenses to goods and services, such as salaries and utilities. The ABC system of cost
accounting is built around activities, which are defined as any occasion, project, or task with a
clear objective.
4. Target costing: It calculates product costs by deducting a desired profit margin from a price
that is competitive in the market. The target cost is primarily customer-focused and a crucial
idea for as it refers to the competitive market.
5. Life Cycle Costing - Businesses of all sizes and types can benefit greatly from life cycle
costing. It provides an accurate assessment of expenses across a product's lifetime. Businesses
typically want to purchase goods with a lower upfront cost. The operational costs, recurrent
charges, and maintenance costs can, however, build up over time. When these factors are taken
into account, the product may end up being significantly more expensive than one with a
greater initial cost but lower ongoing costs. Even though life cycle costing takes time, it can
reveal expenses that make decision-making easier.
Productivity
By comparing the quantity of goods and services produced (output) with the quantity of inputs
required to generate those goods and services, productivity is a measure of economic performance.
Productivity is a measure of how effectively commodities or services are produced. Productivity is
sometimes represented as a ratio of the whole output to a single input or the total input used in a
production process, or output per unit of input, usually over a predetermined time period. When inputs
grow slower than output, productivity rises. Additionally, you might see a gain in productivity when a
business produces the same amount of output with fewer inputs.
Every productive and prosperous company recognises the value of workplace productivity. Certain
pricing power, one might anticipate bigger profit margins per unit based on reduced cost of production
due to higher creation process efficiency. The more productive a given organisation is, the less
expensive its product will be.
Manufacturing industries may increase their productivity using a variety of cost management
approaches with the use of a cost management system. The objective of cost management is
substantially broader than that of standard costing systems. Understanding the cost structure of the
company is essential for cost management. Information for internal users is produced by cost
management. Information that is helpful for managers is identified, gathered, measured, classified, and
reported by cost management.
1. Calculating the costs of a product, customers, suppliers, and other important objects is
necessary for decision-making, planning, control, and continuous improvement.
2. Benefits of a cost management system include:
3. It assists in reducing project-specific costs, which in turn lowers total business costs.
4. Future costs and expenses can be predicted, and work towards expected income in accordance.
5. Records for the business can be kept for predefined prices.
6. It assists in taking the required steps to ensure that the resources and business operations are
directed towards achieving the set objectives and goals.
7. It aids in the analysis of the industry's long-term tendencies.

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8. The actual costs incurred and the forecasted costs can be compared to see whether part of the
firm is spending more than anticipated.
9. It assists in analysing the business positioning with regard to potential acquisitions while
taking into account the associated costs.
Conclusion
With the proper implementation of the cost management system, the management of the organisation
is able to know when the cost will be incurred in the future and can make an educated and appropriate
decision for the actions that must be taken, which affects the performance of the organisation. Cost
management enables both cost reduction and productivity improvement.
References
1. Don R. Hansen and Maryanne M. Mowen : Cost Management Accounting and control
2. European Journal of Business and Management (2015)- The Impact of Applying Cost
Management Tools in Cost Reduction in service companies
3. Ezekiel oyerogba(2014): Cost Management Practices and firm’s performance of
Manufacturing Organizations
4. https://www.ispatguru.com/cost-management-and-organizational-performance
5. John Nkeobuna Nnah Ugoani(2019):Activity Cost Management and its Effect on Enterprise
Productivity

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