Production

Stage II

-Denotes flow of materials, parts, partially finished goods, and finished goods.

-Denotes a signal that more goods are needed at the next stage of production.

Cost Management Systems

The explosion in technology we are experiencing, coupled with increasing worldwide competition, is forcing managers to produce high-quality goods and services, provide outstanding customer service, and do so at the lowest possible cost. These demands are placing ever-greater requirements on the information provided by managerial accounting systems. Many companies are moving away from a historical cost-accounting perspective and toward a proactive cost management perspective. A cost management system is a management planning and control system with the following objectives.

-To measure the cost of the resources consumed in performing the organization’s significant activities.

-To identify and eliminate non-value-added costs. These are the costs’ of activities that can be eliminated with no deterioration of product quality, performance, or perceived value.

-To determine the efficiency and effectiveness of all major activities performed in the enterprise.

-To identify and evaluate new activities that can improve the future performance of the organization.

Notice the emphasis of a cost management system on the organization’s activities. This emphasis, sometimes called activity accounting, is crucial to the goal of producing quality goods and services at the lowest possible cost. In keeping with the focus in activities, managerial accountants have developed a system for determining the cost of producing goods or services called activitybased costing (ABC). In an ABC system, the costs of the organization’s significant activities are accumulated and then assigned to goods or services in accordance with how the activities are used in the production of those goods and services.