It’s Beginning To Look A Lot Like . . . Cost Revision Time

Dec 17, 2014

This time of year everywhere you go and practically everything you hear is related to the holiday season. For some, the hustle and bustle of the holidays are filled with excitement and for others, its becomes a nightmare of stress. Whatever it is to you, I do wish you and yours a happy holiday season. Another exciting aspect about this time of year is annual cost revisions.

Doing your cost revisions annually is a necessity. Depending on your industry you may even need to do them more frequently, but typically annually is a good rule of thumb. There may be times during the year that a standard is altered due to a short-term issue. If the time frame is short then this should have been flushed out as a variance. However, if the change in the standard will be for an extended timeframe (meaning the rest of the period) or is substantial, adjustments may need to be made. By substantial I mean anything around a 30% change. Otherwise, standards should be set annually. Consistently altering standards will prevent transparency and create confusion.

When reviewing your cost revisions, make sure your program is reasonable. Does your cost driver still make sense or did you change your process? Are your standards practical and prove to be accurate? What about your routings?  As with any business plan, it is essential take a step back each year and evaluate your direction and growth. A cost revision is no different. Don’t fall into the trap of SALY, doing the same as last year. Taking a step back to review your current costing plan can positively impact the health of your business and get you started on the right track for 2015.

Categories: Cost Accounting