Cost Management techniques Flashcards
What is ABC?
Works on the basis of considering what causes each overhead and then absorbing the overhead on a more specific basis. ABC examines causes of groups of overhead costs (cost pools) and uses the activites (cost drivers) to distribute the costs to the products.
Advantages of ABC?
Provide more accurate cost per unit
Provides insight into how activites drive costs and recognises that costs aren’t jsut related to production and sales
Disadvantages of ABC?
Time consuming - identifying, measuring and tracking all the activites requires a lot of effort, unsuitable for smaller business
Skill - Complex method to introduce
Expensive to implement
What is value engineering?
Ensuring new products are designed for quality at a low cost, by analysing every part of the product and how it enhances value.
What is value analysis?
Analysing every part of the design of an exisitng product and question whether its function can be achieved in a cheaper way.
What is life cycle costing?
Describes the process of identifying all the costs associated with a product from the start of its development to the end.
How is life cycle costing effective?
Allows managemnent to see whether a product is porfitable before development.
Used for pricing decisions - look at sales forecast at different selling prices over several years
When answering a cost saving question, how should residual value be treated?
Residual value is income (cash inflow) and therefore is a minus.
Disadvantages of life cycle costing?
Difficulty predicting the life span of the product.
Detailed research needs to take place to predict how many products will be sold.
Other factors such as inflation, intrest rate, technological advances
What is the use of discounted cashflow techniques?
Used in conjunction with life cycle costing - Used to examine and quantify the costs throughout the life cycle.
If there is income on the discounted lifecycle cost of a product, how is this treated?
Income is a negative, scrap value of 5000 will be shown as -5000
What is AI?
It is a predictive tool which uses historical data and applies it to make processes and predictions more accurate.
Ad - Chat bots - help customer experience
Dis - If bad experience, loss of goodwill
What is cloud accouting?
The financial software and data is held remotely.
Ad - Flexibility, collaborative working
Dis - Hacking and data breaches, Skill
What is data analytics?
Organises large amounts of data to help establish patterns and anomolies. LOOKS BEYOND NUMERICAL DATA
Ad - Good for planning, quick decision making
Dis - Skill, sometimes too much data
What is visualisation?
Use of software to provide images or to communciate key info.
Ad - Enagaging results, clear and effective way.
What does the term value added mean?
describes activites or manufacturing processes that create an aspect of the product that customers are willing to pay for
