Traditional Cost Accounting Systems even if supported by advanced approaches like Target Costing, Strategic Costs and Activity Based Costing can not provide enough conditions for cost control and optimization. They often incorporate at least one or another of the four biggest mistakes.
First big mistake
– Lack of focus on the causes of the costs, but only with the consequences.
The causes of costs are the processes and sub processes occurred in the production and there is multiple factors that determine such costs. Factors as set up, quality of production planning, quality of raw material, preventive and predictive maintenance, idle capacity and many other will determine final costs.
Second big mistake
– Excess of focus on processing costsincluding labor, indirect labor and other overheads costs.
Several other categories of costs frequently do not receive enough attention of the pseudo costs experts. So, category of costs like raw material, packaging, costs of quality and non quality, packaging, maintenance costs, costs with outsourced services, logistics, transportation and many other are not controled by many traditional cost systems.
Third big mistake
– Lack of emphasis on non-financial indicators and other determinants factors that impacts on costs.
Accounting cost systems normally only focus values. Values are consequences, as we have seen in the first big mistake. Control and optimization of costs requires a deep evaluation of indicators such as production volume, production performance, OEE (overall equipment efficiency), idle capacity, scrap rates, and several other non-financial indexes.
Fourth Big mistake
– Lack of contact with the place where the costs occurs.
Accounting costs bureaucrats often spend years calculating costs without the worry of visiting and checking what is happening on the place where the costs are generated. In the case of a manufacture company the shopping floor should bee contacted frequently. Suppliers and Customers also should widely be contacted. Only a direct contact with processes and agents involved will permit to understand what is really behind the accounting costs.
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