AFM ASSIGNMENT 2

GROUP NAME: BUDDY MANAGERS

TOPIC: RECENT DEVELOPMENT IN COST MANAGEMENT

GROUP MEMBERS: HEMA (29, A), NISHA RANI (90, B), RAJVIR KAUR (154, C)

SUBMITTED TO: MR. GURDEEPAK SINGH

INTRODUCTION:

In the changing business environment majority of firms are concentrating mainly on cost effectiveness. Product costing techniques are created and implemented to aid manufacturers in allocating costs to production items. This competitive environment demands that companies must find cost-efficient ways of producing high quality products.

After decades relative stability in cost accounting. The increasingly competitive environment through the 1980’s and 1990’s has been the prime stimulus for a range of new developments in cost identification, cost management and possibly to a lesser extent, in broader aspects of financial control concerned with responsibility accounting . These developments were mainly initiated in companies related to the motor industry and high-tech companies in Industries like computing and electronics where the competitive threat from Japan in particular was serving.

(By Hema)

DISCUSSION

Now a day’s important tools in cost management being an improvement in the traditional costing system are coming up like:

1. Target Costing

2. Kaizen Costing

3. Activity –based costing

TARGET COSTING

Target costing is a pricing method used by firms. It is defined as "a cost management tool for reducing the overall cost of a product over its entire life-cycle with the help of production, engineering, research and design". A target cost is the maximum amount of cost that can be incurred on a product and with it the firm can still earn the required profit margin from that product at a particular selling price.

Process of Target costing:

KAIZEN COSTING

Kaizen costing focuses on continuous reductions of costs. For planning and control purposes, comprehensive and efficient tools for measuring performance are required. For this purpose we suggest the so-called “half-life model”. It is based on the practical experience that any defect level decreases at a constant rate over a certain time period. This paper gives the mathematical formulation for this model and illustrates its practical use with different examples.

ACTIVITY BASED COSTING (ABC)

Activity-based costing (ABC) is a special costing model that identifies activities in an organization and assigns the cost of each activity with resources to all products and services according to the actual consumption by each. This model assigns more indirect costs (overhead) into direct costs compared to conventional costing models.

(By Rajvir kaur)

CONCLUSION

In the end I conclude that now cost management has been utilized throughout the Planning, Design, and Development Process. Throughout a project's planning, design, and construction phases, Cost Management is employed as a means of balancing a project's scope and expectations of quality and budget. To provide data for future cost management, an evaluation is often carried out to prepare a detailed cost analysis of the completed project and to develop lessons learned to inform future design decisions. As business became more complex and began producing a greater variety of products, the use of cost accounting to make decisions to maximize profitability came under question. Therefore it is further required to do more research regarding cost management with a view to improvement in construction projects.

(By Nisha Rani)