Innovation & Proactivity in Cost Accounting
May 09, 2016
Once again, our costing accounting team has taught continuing professional education (CPE) classes for CPAs in both public and private firms. Our most recent class consisted of approximately 20 individuals virtually all from industry. Tara and I both recognize that every class we teach, we learn something from the participants which is innovative and useful when dealing with our clients and their cost problems.
Our recent class consisted of inexperienced and veteran cost accountants each offering varying perspectives on a variety of subjects. Every personal experience was helpful in providing new and unique perspectives to help the class members enjoy an informative session.
One of our attendees was a cost manager from a food manufacturer where a standard cost system had been implemented. The system was based on the development of current information for inventory valuation and individual product profitability. However, it also supported management control information for all departments of the business. This was being accomplished by publishing the most common variances at a frequency useful to the management team.. This also provided additional insight into how to best manage the company. After conversing with the attendee, I got the impression the system had been in place for quite some time and they had fine-tuned the system to the point that typical issue been worked out.
Based on my experience, many cost managers typically reconcile their systems annually. However, it may be many years before the system is updated and compared to actual results. This is necessary to ensure the system properly reflects the cost recovery processes in the plant. In this particular case, the company had decided to reconcile their cost system the general ledger on a monthly basis. At the end of every monthly reporting period, the cost system was being compared to the actual results to search for over or under recovered costs which might require revisions in the costing system.
For many companies, computing the full range of variances (including all direct cost variances, as well as the overhead variances) can be considered a type of reconciliation. However, what was unique about this particular company was the comprehensive review of all costs reconciled to the entire cost system for the month. I believe this frequency, although highly desirable to help support the accuracy of the cost system, was unusual in most industries for a variety of reasons.
Such a prompt review process can result in changes whether it is in overhead or indirect costs. These can be dealt with and incorporated into the costing system which allows any changes in the process to be reflected on a monthly basis in the standard cost system. This can be of great benefit to the management team, particularly to the extent that they have to make adjustments in processes or product selling prices to remain competitive and profitable in the market.
This individual was obviously a talented cost manager and was managing his company’s costing information in a way that was unique and proactive.
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