Cost management can also be defined by the terminology Cost Accounting. Every business involves the cost. There can be various kinds of costs such as Fixed Cost & Variable Cost and managing the cost in order to have least expenditure and maximum utilization of the finances, Cost Management process is being used. Fixed Costs refer to certain costs which have fixed or definite amount associated with it like – manpower cost, electricity expenses, office rent, infrastructural expenses etc. Variable Costs refer to certain costs that are not definite but change with time and under various conditions like – Incentive of employees, maintenance & repair costs, Other future incurring cost which are uncertain at this moment etc.
In case one need to manage the various costs then we need to classify them under the following heads:
1. Cost as per the nature – labour, expenses etc.
2. Cost as per the variability – Variable, semi-variable or fixed.
3. Cost as per the normality – Normal and Abnormal.
4. Costs as per the traceability – Direct or Indirect Costs etc.
A business is said to be more complex in case all the cost factors are not taken into consideration and properly controlled. It is essential that we should save costs and generate more and more which would only be possible when we are controlling the expenses and wherever possible control the situation.
There are broadly various categories of costs
a. Activity Based Costing – It means dividing the costs into various activities that are being part of it. These activities based costing helps us in determining where a company or the department can make the operational improvements and accordingly create more revenue, income as well as the profitability.
b. Lean Accounting – Lean Accounting has replaced the traditional accounting methods. In this kind of accounting, the stress is more on the elimination of waste, performance measurements, value – based pricing etc.
c. Marginal Costing – it defines and develops a relation between the volume, cost and profit. The margins help us in defining the profits and the profitability. The expenses when taken out from the total sales give us the contribution margins.
Costing accounting or management is of utmost priority as if the cost factor which is the major contributing factor is not controlled would lead to the losses and generation of lesser revenues. Cost management is a process which is been followed by the team of finance & accounts. The management of the money is very much essential as money if not managed properly, would be wasted in even the unnecessary expenses and would lead to unstable structure of the organization.
a. Efficient Fund Flow – The inflow & outflow of money is properly recorded and tracked. The money or the funds are utilized as the fund flow only tells the inflow and outflow of the money.
b. Provision for various amounts – Costs or money if properly managed can create various accounts for the provision or the pro-active revenue is being saved for the future expenditures & costing.
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