Advantages And Disadvantages Of Cost Management

Brief overview of the company:

Problems faced by the management:

The process of planning and controlling the costs involved in a business effectively is known as cost management. It involves various activities such as collecting, analyzing, evaluating and reporting cost statistics for budgeting. It is used to control a company’s overall budgeting. It is an integral part of business management. It emphasises on cost reduction and continuous improvement and change rather than cost containment.

When cost management is applied to a specific project, the expected costs in the business are analyzed in the beginning phase of the planning period. The costs and expenses are recorded and monitored during the project execution period to ensure that

If the profit is going to be adequate, the costs have to be sufficiently low. Therefore, instead of starting with the cost and working to the selling price by adding on the expected margin, target costing starts with the selling price of a particular product and works back to the cost by removing the profit element. This helps the company has to find ways of not exceeding that cost.

Target costing is a system through which a company plans in advance for the prices, costs of the product, and margins that it aims to achieve for a new product. If the company fails to manufacture a product at these planned levels, then it cancels the entire design project. With target costing, a management team has a powerful tool for continually monitoring products from the moment they enter the design phase throughout their product life cycles. It is considered one of the most important tools for achieving consistent profitability in a manufacturing

Engineer the product. The engineers and procurement personnel on the team now take the leading role in creating the product. The procurement staff is particularly important if the product has a high proportion of purchased parts; they must determine component pricing based on the necessary quality, delivery, and quantity levels expected for the product. They may also be involved in outsourcing parts, if this results in lower costs. The engineers must design the product to meet the cost target, which will likely include a number of design iterations to see which combination of revised features and design considerations results in the lowest cost.

4. Ongoing activities. Once a product design is finalized and approved, the team is reconstituted to include fewer designers and more industrial engineers. The team now enters into a new phase of reducing production costs, which continues for the life of the product. For example, cost reductions may come from waste reductions in production (known as kaizen costing), or from planned supplier cost reductions. These ongoing cost reductions yield enough additional gross margin for the company to further reduce the price of the product over time, in response to increases in the level of