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Choose an appropriate costing system, Rank the importance from highest to…
Choose an appropriate costing system
Organization Review
Management sophistication
The current IT environment
Organizational size and diversity
Level of centralization
Decision-making concentration
Quality and depth of the finance analyst team
Number of employees
Is the change necessary? Y/N
Conduct the environmental scan
The competitive landscape review
Management style and environment review
Current technology platforms and plans
Desired outcomes from a new
costing system
Available budget for any change imitative
An evaluation of the current costing system
A review of the current
business issues
Costing System Requirments
What is the use of cost information?
Product costing
Product pricing
Service costing
Budgeting
Inventory valuation
Performance measurement
Product profitability
Customer profitability
Cost reductions
Capital expenditure justification
External reporting
Benchmarking
Compensation systems
Continuous improvement tracking
Review the current strategic plan of the company to help determine the major requirements from the organization that the finance function may need to support
If your goal/“burning platform” is to
Maximize shareholder value / rationalize investment
Then the “right” tool may be
Economic profit
Better understand how to sell the right products to the right customers at the right price
Then the “right” tool may be
ABC
Reduce costs quickly
Then the “right” tool may be
Process costing
Tie performance to goals
Then the “right” tool may be
ABC
Better understand and manage the cost of idle capacity
Then the “right” tool may be
RCA/GPK
Create a better budget
Then the “right” tool may be
ABC/Management or Beyond Budgeting
Optimize plant floor efficiencies
Then the “right” tool may be
Throughput accounting
Understand total product profitability
Then the “right” tool may be
Life-cycle costing
Satisfy external reporting requirements with an easily implementable costing system
Then the “right” tool may be
Standard costing
Product Review
Product diversity
Product complexity
Product manufacturing diversity
Rate of product changes
Customer Review
Customer diversity
Channel diversity
Rate of customer change
Level of market stability
Unique requirements of the organization
Manufacturing needs to be completed
Service needs to be completed
Government needs to be completed
Rank the importance from highest to lowest