Economic sciences
Doctor of economic sciences Mishulina O.V.
Kostanay state university named after A.Baitursynov Kazakhstan
Situational approach to cost
management
at the enterprise
Cost management is one of the innovations of modern dynamically developing
professions as manager, marketing manager and economist.
These modern economics’ interrelated areas have recently emerged in Kazakhstan.
Textbooks and teaching guide come out,
that were devoted to this topic, and also appeared some organization where cost
management is at different implementation and development stage. More investors are willing to explore specific features of cost
management in market conditions, size the possibilities, and apply these
systems or their components in their enterprises.
Cost management
is fundamental term increasing competiveness and causes constant development and improvement
necessity of costs management in organizations. As
a result «cost
management» concept needs
clarification.
Presently the
educational and scientific literature provides the following definition of this
term.
According to the
first approach - accounting, as a ground of «cost management» is accepted internal accounting
system by means of it production expense accounting is carried out, costing
and cost management.
According to the
second – systematic approach, it is
supposed to consider cost management, on the one hand, as interconnected method system of expense
calculation and output cost determination, and on the other hand, only as direct-costing
system.
Basis of cost management mechanism makes the system and formation
methods and products expenses
calculation (work, services). Systems and formation
methods and expenses calculation, applied in the international practice at the
enterprises are characterized by many signs which are based on their
classification and division into three levels in dependence:
1. By input volume, for the media or fixed costs
absorption value - total absorption method (absorption - cost system) and partial cost absorption method (direct
- cost system);
2. By information (actual, planned or standard) provide the basis for
calculation or temporary orientation valuation. In this case methods can be
divided into real expense calculation (
actual or historical – cost system),
typical ( standard – cost system),
costing ( estimated cost system) ;
3.
By cost object selection (subdivision,
products,
and technological processes during cost formation)
or, depending on the organization
and production technology - per-order (job order cost system) and process
(process cost system) methods.
Studying material that highlights world economy
showed that the cost management is based on big variety of applied systems and
methods. Basic systems and
formation methods and expenses calculation only six, enterprises
different objectives caused uprising of a large number of combinations. Using
the full cost calculation managers can evaluate standard costs and use
it in combination with custom method or process method. There is no net system
for accounting working expenses and output cost determination such as direct –
costing or standard – cost, or process - based calculation method, only their
combinations viable.
An alternative of
total cost absorption in western enterprise that have no analogue in our
economy stands for partial cost inclusion method which in translated literature
has different variations (and has long
been used in countries with developed market economies in two versions: a
simple direct-costing and developed direct-costing). It can be explained that
on the one hand this methods based on cost calculation, and on the other - the
difference between the sales revenues and expenses calculation
Production cost
divided into fixed (independent of production volume) and variable
(proportional to volume production) is the first specific feature of direct –
costing system. The importance of division cost on fixed and variable is in
efficiency increasing obtaining data of profit.
The second feature is the integration of production and financial
accounting. Regularly production costs and income statements are provided to the
management in the form of data dependencies «cost - volume - profit that a
foreign source is the name of the CVP - analysis (Cost-Volume - Profit
analysis).
Drawing up
account of company’s earnings is a many phases process that economist prepare
is the third distinctive feature of cost product accounting according to
direct - costing system, this is done
on basis of marginal income or margin with a variable production cost which is income overhang from the sale compared to
variable costs. This is the main characteristic on which company management can
influence. Therefore, for a managing director it is very
important to know how they can influence on these characteristics and what will
be the results of this impact. The main aim of system
implementation is to ensure over contribution margin formation at the
enterprise in a view of specific products types.
Concerning our
enterprises the implementation of this system, in our opinion, has objective
reasons, concrete economic preconditions:
growth of competition between the isolated producers, growth of production expenses and product
realization, economic struggle for distribution areas and quest for a new
market, manufacturer’s aiming complicacy. Thus, formation of the market
relations is the most important objective condition of direct-costing system implementation at our enterprises.
The third approach suggests that the cost management is identical to the
economic calculation.
According to the
fourth approach (process) cost management is the incarnating process of e
managerial functions with control or planning orientation. The essence of any
managerial process reveals though its functions. Such point of
view is the most
widespread. Concrete of management body points out that will be reveal in its
functions, in each case filled with specific contents. Accordingly to cost management
functions and element of its implementation should be attributed 1) development
and decision-making (planning and
forecasting activity); 2) decision
implementation (organization, coordination regulation, strengthen and encourage);
3) control (accounting, analysis).
Cost planning and forecasting activity can be divided into prospective
and current. Long – term planning object
is to prepare information about estimated cost for production plan realization.
It can be expenditures connected with marketing research or investments. Current plans indicate the long –
term objectives implementation of the enterprise.
If long-term expenditures
planning accuracy is small and influenced by the inflation
process, competitors behavior, the
state policy in the field of economic enterprise management , and sometimes act of god, short-term planning costs, reflecting the
nearest future needs , more accurately, as
they grounded by the annual, quarterly account.
Organization is key element to the efficient
cost management. It specifies how the enterprises
manage costs: who will do, in what time limits, which information and documents
will be used and in what ways. Cost centers, account cost centers and
responsibility center for their observance are defined. Hierarchical system of
linear and functional relations between managers and specialists designed, that
are involved in cost managing should
be compatible with the organizational-industrial structure of the enterprise.
Input coordination and regulation assume
comparison of the actual expenses with budgetary, disclosure of deviations and
acceptance prompts actions for their elimination. If it becomes
clear that implementation conditions
of the budget changed, the expenses planned for its realization, are corrected.
Timely input coordination and regulation
allows the organization to avoid serious disruption in the
implementation of the planned economic activity result.
Activation and stimulation mean research such
ways of impact on production participants which will keep expense budget
pressure and find possibilities to decrease it. Such actions can be motivated by material and moral factors. There should not be incentives to compliance and cost savings replaced
punishment for cost overruns. This can lead to the fact that employees’ main efforts will be put to
challenge the planned costs, they will warm up it. Then the achievement of organization
main goals to receive top profit
reducing costs - will be a difficult challenge.
Accounting as a key element of cost management is necessary to prepare
information for making the right business decisions For example, in estimating
the value of inventories expenses incurred set by production records, and
information about the actual performance of the organization and all its
production costs supplies accounting. Production accounting included in the
system of management accounting that allows you to control costs and make
decisions about their feasibility.
Cost analysis - monitoring function’s element,
which helps assess the enterprise resource effectiveness, reveal reserves for
reducing the costs production, to gather information to prepare plans and make
rational managerial decisions in the sphere of costs.
Monitoring in a cost management system provides feedback – comparison of
the planned and actual expenses. Control efficiency is caused by the
correcting administrative actions directed on reduction of actual expenses in
compliance with planned or on specification plans if they can't be executed
owing to objective change of working conditions.
Within the fifth
approach – situational, the main thesis of system approach develops: enterprise expenses management, being a
component of enterprise management system – open system which
constantly interacts with external environment. For this reason what happens in the system, should be looked
for out of it, where it really functions.
This is a key concept of this approach.
For the first time in the 50-ies of the last century
the value of this approach was able to recognize, to compile and describe P.F.
Drucker, who can be called the ancestor of management as a systematic
discipline. In his opinion, the basis of the new administration paradigm can
put the following conclusions: «Management exists for the sake of results,
which the organization reaches in the external environment. Management must
determine the kind of results you want to achieve; management must mobilize organization
resources to achieve these results. Management is intended to ensure that
any organization had the opportunity to achieve the planned outcome of the
external environment, outside of the organization».
Situational
approach showed that there is no best way of management at all; the effectiveness can be defined by a
management situation. This approach can be named the
concept of management relativity. Today it is the theory and practice of management. In a context of situational approach expenses
management - is the system expressing
the subject and object relations, connected with formation, expenses distribution and calculation production prime cost (works, services), getting on the basis information about the costs for different
purposes and allowing in the relevant range to choose the alternative action
and adoption of adaptive consecutive rational management decisions.
Such definition «management
costs» more perfects than other reveals
the real content of this category in modern conditions. This system functioning allows: to determine the
size of the funds required for the effective operation of organizations and
departments; to plan its strategy, tactics and future actions; resources optimal usage, current activities results measure and
evaluate , eliminate subjectivity in decision-making. In the cost management
system depending on organization type, activities, management purposes, the
specialized subsystems, as objects of cost management in the operating,
investing and financing activities.
References:
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Textbook. – M: YuNITI-DANA, 2002. – Page 27-31, Page 44.
2 Horngren Ch.T. Foster Dzh.
Accounting: administrative aspect: transl. from English / under the editorship
of Ya.V.Sokolova. – M: Finance and
statistics, 2003. – Page 8-11, Page 20-21.
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activity results : monograph. - M: "Business and
Service", 2002. – Page 7-14, Page 51-59.
4.
Expenses management at
the enterprise: manual. 2nd prod.-e, reslave. and additional V. G. Lebedev,
etc. SPb: "Business press", 2003 – Page 7-16.
5.
Hamidullina G.R. Expenses management: planning, account, control and
analysis of distribution costs, M: "Examination", 2004 – Page 9-186.
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minimization of expenses: practical
guidance / Yu.N. Lapygin, N. G.
Prokhorov. – M: Eksmo, 2007. – Page 6-20, Page
122-124.
7. Expenses management:
Strategic Management / David P. Doyle;
[a per with English I.V.Kozyr and N. Sologub].– Moscow:
Volters Kluver, 2006. – Page 1-16.
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– Moscow: IKTs "March", Rostov N / D: Publishing center
"Mart", 2006. – Page 8-230.