Cost Management Guidebook. Steven M. Bragg

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1 Cost Management Guidebook Steven M. Bragg

2 Table of Contents Chapter 1 Overview of Cost Management... 1 Learning Objectives... 1 Introduction... 1 The Economics of Cost Management... 1 How Costs Increase... 2 Advantages of Cost Management... 3 The Cost Management Environment... 4 The Customer Service Conundrum... 5 The Effects of Cutting Too Deep... 5 Summary... 6 Review Questions... 7 Review Answers... 8 Chapter 2 Types of Costs... 9 Learning Objectives... 9 Introduction... 9 Fixed Costs... 9 Variable Costs Mixed Costs Step Costs Marginal Costs Differential Costs Discretionary Costs Committed Costs Sunk Costs Summary Review Questions Review Answers Chapter 3 Direct Costing as an Analysis Tool Learning Objectives Introduction Overview of Direct Costing Contribution Margin versus Gross Margin Direct Costing as an Analysis Tool Automation Investments Cost Reporting Customer Profitability Profit-Volume Relationship Outsourcing Direct Costing Pitfalls Increasing Costs Indirect Costs Relevant Range Summary Review Questions Review Answers i

3 Chapter 4 Cost-Volume-Profit Analysis Learning Objectives Introduction Contribution Margin Contribution Margin Income Statement Breakeven Point Margin of Safety Cost-Volume-Profit Analysis Sales Mix Summary Review Questions Review Answers Chapter 5 Target Costing Learning Objectives Introduction The Basic Steps of Target Costing Value Engineering Considerations The Cost Reduction Program The Milestone Review Process Problems with Target Costing The Members of a Design Team The Role of the Accountant in Target Costing Data Sources for Target Costing The Product Life Cycle and Target Costing Summary Review Questions Review Answers Chapter 6 Cost Object Analysis Learning Objectives Introduction Factors in Cost Object Analysis The Assignability of Costs The Customer Cost Object Costs to Assign to a Customer The Employee Cost Object Costs to Assign to an Employee The Product Cost Object Costs to Assign to a Product The Product Line Cost Object Additional Costs to Assign to a Product Line The Sales Channel Cost Object Additional Costs to Assign to a Product Line Cost Object Termination Issues Which Cost Objects to Track Tracking Concepts for Cost Objects Summary Review Questions Review Answers ii

4 Chapter 7 Constraint Analysis Learning Objectives Introduction Constraint Analysis Operational Terminology Overview of Constraint Analysis The Cost of the Bottleneck Local Optimization Constraint Analysis Financial Terminology Constraint Analysis from a Financial Perspective The Constraint Analysis Model The Decision to Sell at a Lower Price The Decision to Outsource Production The Capital Investment Decision The Decision to Cancel a Product Summary Review Questions Review Answers Chapter 8 Process Analysis Learning Objectives Introduction Process Analysis Tools Value Stream Mapping Flowcharts Run Charts Check Sheets Root Cause Analysis Traffic Analysis Summary Review Questions Review Answers Chapter 9 Zero-Base Budgeting Learning Objectives Introduction Overview of Zero-Base Budgeting The Zero-Base Budgeting Process Step 1 Develop Decision Packages Step 2 Rank Decision Packages Advantages of Zero-Base Budgeting Problems with Zero-Base Budgeting Conditional Budgeting Summary Review Questions Review Answers Chapter 10 Cost Reduction Strategy Learning Objectives Introduction Failing Business Scenarios Dealing with Unrelated Business Segments Failing Business Model: Remain in the Same Business Failing Business Model: Shift to New Model iii

5 Dealing with Expense Drift Incorrect Cost Reduction Strategies Summary Review Questions Review Answers Chapter 11 Compensation Cost Reduction Learning Objectives Introduction Proactive Hiring Solutions Temporary Cost Reductions Permanent Cost Reductions Productivity-Based Solutions Total Labor Cost Analysis Timing of Compensation Changes The Downsizing Process Summary Review Questions Review Answers Chapter 12 Benefits Cost Reduction Learning Objectives Introduction Benefit Cost Sharing Benefit Reductions Benefit Limitations Benefit Exclusions Benefit Swaps Benefit Aggregation Concepts Benefit Terminations Workers Compensation Issues Corporate Wellness Programs Training Benefits Eligibility Audits Benefit Cost Administration Other Cost Management Concepts Summary Review Questions Review Answers Chapter 13 Sales and Marketing Effectiveness Learning Objectives Introduction Sales Effectiveness Improvements Marketing Effectiveness Improvements Customer Service Issues Summary Review Questions Review Answers Chapter 14 Production and Maintenance Cost Reduction Learning Objectives Introduction Production Cost Reduction iv

6 Complexity Reduction Manufacturing Systems Production Cells Production Line Issues Quality Issues Bottleneck Analysis Outsourcing Issues Inventory Reduction Administrative Issues Summary Maintenance Cost Reduction Equipment Maintenance Maintenance, Repair, and Operations Procurement Summary Summary Review Questions Review Answers Chapter 15 Procurement Cost Reduction Learning Objectives Introduction Purchase Requisition Procedure Purchasing Procedure Procurement Process Changes Procurement Centralization Supplier Relations Consolidation Activities Standardize Supplier Dealings Integrate with Suppliers Other Cost Management Opportunities Total Cost Concept Outsourcing Concepts Spend Management Summary Review Questions Review Answers Chapter 16 Administration Cost Reduction Learning Objectives Introduction General Administration Cost Reduction Accounting Cost Reduction Accounts Payable Auditing Collections Cost Accounting Customer Billing Fixed Assets Payroll Reporting Systems Human Resources Cost Reduction If Human Resources is Supported v

7 If Human Resources is Not Supported Legal Services Cost Reduction Information Technology Cost Reduction Travel and Entertainment Cost Reduction Summary Review Questions Review Answers Chapter 17 Facilities Cost Reduction Learning Objectives Introduction Facility Location Lease Rates Facility Costs Facility Usage Furniture and Office Equipment Projecting Future Usage Summary Review Questions Review Answers Chapter 18 Finance Cost Reduction Learning Objectives Introduction Banking Cost Management Debt Management Cash Management Cost Reduction Investment Strategy Leasing Cost Reduction Insurance Cost Reduction How to Operate with Zero Working Capital Summary Review Questions Review Answers Chapter 19 Accounts Receivable Reduction Learning Objectives Introduction Credit Risk Reduction Payment Guarantees Title Retention Credit Insurance Factoring Letters of Credit Export-Import Guarantees Outside Financing Distributor Sales Adjustment of Days to Pay Collection Tactics Dunning Letters Take Back Merchandise Hold Orders Split Payments vi

8 Postdated Checks Promissory Note Arbitration Attorney Letters Issue Small Claims Court Complaint Collection Agency Money Judgment Collection Activities Summary Review Questions Review Answers Chapter 20 Inventory Reduction Learning Objectives Introduction The Cost of Inventory Product Planning Purchasing and Receiving Inventory Storage Production Fulfillment Inventory Disposition Inventory Management Practices Summary Review Questions Review Answers Chapter 21 Capital Budgeting Decisions Learning Objectives Introduction Overview of Capital Budgeting Bottleneck Analysis Net Present Value Analysis The Payback Method Capital Budget Proposal Analysis The Outsourcing Decision The Post Installation Review The Lease or Buy Decision Summary Review Questions Review Answers Chapter 22 Cost Management Reports Learning Objectives Introduction Expense Reporting Payroll Reporting Margin Reporting Spend Reporting Responsibility Reporting Cost Reduction Opportunity Reporting Summary Review Questions Review Answers vii

9 Chapter 23 Cost Management Measurements Learning Objectives Introduction Compensation Measurements Profit per Person Employee Turnover Benefits Measurements Benefits to Base Pay Ratio Employee Cost Sharing as Percent of Pay Sales Measurements Sales Productivity Sales Effectiveness Quote to Close Ratio Production and Maintenance Measurements Manufacturing Effectiveness Throughput of Post-Bottleneck Scrap Order Cycle Time Procurement Measurements Procurement Card Usage Percentage Proportion of Spend Managed Proportion of Spend with Preferred Suppliers Administration Measurements Administration FTEs per $1,000,000 Revenue Administration Cost as Percent of Revenue Transaction Error Rate Facilities Measurements Square Feet per Person Cost per Square Foot Finance Measurements Proportion of Cash Invested Average Interest Rate Paid in Excess of Prime Rate Asset Measurements Receivables Turnover Inventory Turnover Fixed Asset Turnover Summary Review Questions Review Answers Glossary Index viii

Accounting for Managers

Accounting for Managers 2 nd Edition Steven M. Bragg Chapter 1 The Need for Accounting Information... 1 Learning Objectives... 1 Introduction... 1 The Accountancy Concept... 1 Financial and Managerial