Why Discrete Manufacturers Take a “Rear View” Look at Product Costs
According to Frank Azzolino, President & CEO of aPriori, the Massachusetts based Cost Management Platform company, “There are a number of reasons why discrete manufacturers have been forced to take a “rear view” look at product costs, such as evaluating and allocating product costs well after production was underway.”
Cost information in most organizations is fragmented throughout the enterprise. Critical pieces of cost information are spread across independent silos within an organization in different functions like engineering, planning, manufacturing, sourcing, finance, etc. This situation typically results in estimates that do not include all relevant information required to make accurate and predictive product cost assessments.
In most organizations product cost estimates are developed by specialized organizations in cost engineering or VA/VE departments. In most cases, these cost estimates are created separately and independently of the people making the design, manufacturing, and sourcing decisions. This separation results in many decisions being made in a cost knowledge vacuum. The impact of these decisions is typically not known for at least a full financial period after production is well underway.
Product cost estimates (especially early ones) are often based on historical information or very general heuristics (e.g. weight) and are too inaccurate and lack statistical confidence for effective decision making.
Most cost estimating activity falls on a relatively small group of specialized people spending hours manually producing each estimate. Since the demand for costing feedback cannot always be met, the opportunity to experiment with the cost impact of design, manufacturing, planning, sourcing, etc. alternatives is limited and can not be readily cost optimized.
Most cost estimates are static and are not continually updated when new design, manufacturing, planning, or sourcing information becomes available as the product progresses through its design-to-production-to-delivery lifecycle. Out-of-date cost information can not be relied upon for downstream decision making.
Costing practices are not always standardized across the enterprise. As more information is available, different costing practices and methods are used to re-cost items. Unfortunately this makes it difficult to leverage previous estimating work and build traceability in product cost accrual.
Typically cost estimates are not managed through a product’s development through production lifecycle. Multiple cost estimates from different sources are created as different times during the process. It becomes unclear which product cost estimate is current or valid.
Today’s cost accounting methodologies begin with the financial statement for the prior closed financial period. The costs in that period are then allocated across various product lines and processes which are then further allocated for each individual product. These are by definition “rear view” mirror product costs.
aPriori’s Cost Management Software Platform enables manufacturers to better understand product cost decisions early and throughout the product lifecycle. aPriori’s Cost Management Platform empowers manufacturers to lower cost-of-goods sold (COGS), provides real-time visibility to “cost-critical” decision information, and builds critical cost knowledge to go on the business “offensive.” aPriori’s patent-protected cost management platform allows companies to assess, control, and reduce cost of goods sold by whole percentages. The aPriori Platform enables “Cost Knowledge Before it Matters.”
characteristics of a good tax accountant
Tax payment is probably the most confusing process in the world. Many people have many questions regarding the process of tax payment. They have a little or no knowledge about the laws of tax payment and so can not pay tax in a timely manner. The solution to this problem is the tax accountant. The tax accountant is a consultant who can complete the whole process of tax payment for you. If you are worrying about the tax payment, your worries ends now. You can hire a better tax accountant who will solve all of your problems regarding the tax payment.
The job of a tax consultant is to manage the tax payments, planning for the tax, and to assist you in the preparation of your tax payment. If you are looking for a good tax accountant, this article will help you finding a good tax account. This article collects various points that a tax accountant should possess.
Specialization:
The specialization in one or more areas of tax is important requirement of the tax accountant. There are many tax accounting consultants who provide specialized services. They are master of individual areas of tax. The areas of tax such as financial tax, individual tax, etc.
Knowledgeable:
The tax field is too large. There are few persons who have a great knowledge about the tax. The knowledge about tax is a most important characteristic that a tax accountant should possess. If you are looking for a good tax accountant, the knowledge about the taxation should be the first requirement of you.
Experienced:
Experience makes man perfect. When considering someone to process the tax payment, you must see the experience of the person. The experienced person would be easily able to process the tax payment. The tax accountant must possess at least three or four years of experience.
Popular:
The tax payer comes to the tax accountant by the reference of someone. It is obvious that a popular tax account will get more clients. So whenever you are about to hire a tax accountant, you should look for a well experienced person.
Comfortable:
The tax accountant should be comfortable to the tax payers. He should understand the requirements of the client and according to the requirement, the tax payment preparation and planning should be proceed.
Affordable:
The fee of the tax accountant is a major point of consideration when any tax payer would receive services from a tax accountant. The payment to the tax accountant should be according to the services and the amount of tax to be paid.
Situation Special:
The tax payers have many situations, each of which is different then another. The tax accountant that can handle any situation and can solve the tax problem for any situation can be known as the idle tax accountant.
All the characteristics described here may not be found in one person. Some times, a person with knowledge may not be so popular and vice versa. You need to be careful when you choose a tax account for you.
Accounting for Profit With Marginal Costing
costing is an accounting term in which costs and expenses are identified by their variability according to the volume of goods bought or produced. By analysing costs according to the variability in prices can significantly improve profit efficiency levels within a business.
Business costs and expenses as expressed as a unit cost of a product can vary significantly as purchase or production volumes change. The first stage in using marginal costing to generate higher levels of profit is to identify the variability of all the individual cost elements.
Costs which are a component part of the product would normally be classified as variable costs since each component would require to be bought in specifically for that product. The cost of items bought for resale would also be classified as variable costs.
Fixed costs would be items not relating to the volume of goods manufactured or sold. Examples would be the premises costs, machinery costs.
A number of business expenses would be semi variable in that they can in some circumstances be viewed as a fixed expense but in other circumstances could also be viewed as variable expenses. Advertising expenses might be regarded as almost fixed expenses to promote the business or products whereas promoting the business name would be largely a fixed cost while specific product related advertising might be viewed as a variable product cost.
Wages and salaries are an important cost to most businesses and would normally be classified as semi variable. Administration salaries are more likely to be fixed while direct labour costs will contain both a fixed and variable element.
To operate a marginal costing program identify the variability of each cost item and evaluate that marginal cost and the fixed overheads of the business. To use the marginal costing as part of an accounting for profit program apply different volumes to the marginal costs.
At the lowest volume the fixed costs might well exceed the marginal profit, which in accounting terms is called the contribution, being the difference between the selling price and the marginal cost. The point at which the overall volume produces neither a loss nor a profit is called the break even point.
Break even analysis is important to ensure there is sufficient market demand to be able to exceed the break even point and the marketing effort will ensure that break even point is not just reached but easily achievable.
A further stage in accounting for profit would be to plan various volumes, the effect those volumes have on variable costs and occasionally on fixed costs too. Determine what is achievable and what is not achievable, the effect on the volume of profit and set business plans accordingly.
In addition to higher volumes producing higher marginal profits the variable costs also reduce when volumes increase and these changes require to be accounted for. Even if goods are being bought in purely for resale the variable costs will vary with volumes.
Buying in 100 items of a product will be cheaper than buying in 2 or 3. Selling and delivering the items individually is likely to cost more in distribution co0sts than selling in parcels of 10 or 20.
By analysing costs and their variability in relation to actual and potential volumes gives the accountant a real voice to influence management decisions in the way the business plans are constructed and by routine checks on progress using marginal costing as part of the budgeting and reporting process maximum profits can be achieved by accounting for profit.
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