Question

• How a cost manager may add value to an organization?
• How do you perceive a value chain in its relation to cost management?

Answer 1

Cost accountants being specialised in the field of cost and management accounting help in supporting strategic decisions of the firm and give strategic competitive advantage to the firm over its competitors. They help an organisation to attain cost leadership and gain market share in the long term by saving cost. Savings in cost are an important part of investment behind the brands of the company

Some of the illustrative examples of how cost accountants add value to any organisation are given below

· Cost accountants help in application of Variable (Marginal) costing techniques in various decision making aspects. For example: cost volume profit analysis, Break even analysis, Margin of safety analysis, etc

· Cost accountants help in application of Activity Based costing (ABC) techniques which helps in various decision making like product costing , product pricing, job bidding, continue or discontinue products, etc

· Cost accountants help in application of flexible budgeting techniques which helps in meaningful comparison of actual results with flexible budgets. Flexible budgeting tool is widely used by firms to control and reduce costs

· Cost accountants help in implementation of standard costing in an organisation and help in controlling the deviations through variance analysis. For example : Variance analysis reports helps in reconciliation of budgeted net profit with actual profit

· Cost accountants help in various other strategic decision on day to day basis like Make vs. buy, Sell at split off point or process further, Continue or discontinue product or segment lines, shutdown or continue, retain or replace , etc

· Costs helps in applying specialised techniques of cost management like target costing, Just in time , Total quality report ,etc

A value chain can be perceived by cost savings through cost control and cost reduction in an organisation. Costs accountants help in controlling the costs and thereby pay a significant role in delivering value to the organisation. A firm which has cost leadership can grow ahead of its peer in the industry. Cost leadership helps in better pricing then competitors and gain more market share in the long term.