Conceptual Design Principles of Cost Management Systems

Conceptual Design Principles of Cost Management Systems

Cost Principles
• Identify costs of non-value-added activities to improve use of resources.
• Recognize holding costs as a non-value-added activity traceable directly to a product.
• Significant costs should be directly traceable to management reporting objectives.
• Separate cost centers should be established for each homogeneous group of activities consistent with organizational responsibility.
• Activity-based cost accumulation and reporting will improve cost traceability.
• Separate bases for allocations should be developed to reflect causal relations between activity costs and management reporting objectives.
• Costs should be consistent with the requirement to support life-cycle management.
• Technology costs should be assigned directly to products.
• Actual product cost should be measured against target cost to support elimination of waste.
• Cost-effective approaches for internal control should be developed as a company automates.

Performance Measurement Principles
• Performance measures should establish congruence with a company’s objectives.
• Performance measures should be established for significant activities.
• Performance measures should be established to improve visibility of cost drivers.
• Financial and nonfinancial activities should be included in the performance measurement system.

Investment Management Principles
• Investment management should be viewed as more than the capital budgeting process.
• Investment management decisions should be consistent with company goals.
• Multiple criteria should be used to evaluate investment decisions.
• Investments and attendant risks should be considered interrelated elements of an investment strategy.
• Activity data should be traceable to the specific investment opportunity.
• Investment management decisions should support the reduction or elimination of non value-added activities.
• Investment management decisions should support achieving target cost.
Gratitude:Callie Berliner and James A. Brimson, eds., Cost Management for Today’s Advanced Manufacturing :
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