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Elements of Cost Management Systems

A  cost management  system  is  composed of  three primary elements: 

1. Motivational elements:

• Performance measurements
• Reward structure
• Support of organizational mission and competitive strategy

2. Information  elements:

• Support of budgeting process
• Emphasis on product life cycle
• Differentiation of value–added and non–value–added activities
• Support of cost reduction initiatives
• Focus on cost control
• Assessment of core competencies and analysis of make–or–outsource decisions

3. Reporting  elements: 

• Preparation of financial statements
• Provision of details for responsibility accounting system

The elements as a whole must be internally consistent, and the  individually selected elements must be consistent with  the strategies and missions of  the subunits. Different aspects of  these elements may be used  for different purposes. For example, numerous measures of performance can be specified, but only certain measures will be appropriate for specific purposes
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