The Importance Of Cost Management

Introduction

The competitive global market, economic crisis and changes in manufacturing and IT, forces companies to have a comprehensive and accurate information about cost efficiency, products’ and projects’ profitability. They are bound to improve their financial planning and control functions (Shuttlework, 2014). The ability to analyse company costs is an important requirements of an effective cost management and a significant part of company performance. Together, they have contribute to the evolving role of the management accounting function, a branch of accounting that produces information for managers and forms an important integral part of strategic process within an organization.

Manufacturing cost prior to the 20th century

Production technology was fairly simple, with products going through a series of dissimilar processes. All transactions occurred in the market, and the trader could simply measure the success of this order by matching the cash collected from buyers with the cash paid out to the suppliers of the raw materials. The double-entry bookkeeping system recorded money outstanding and borrowed. However, it does not act as a relief to decision making and control. Prior to 1950, management accounting was predominantly focused on the purpose of product

Market information, which had provided details of materials and labour costs acquired in satisfying each customer’s order, was no longer available. This created a need for accounting information to replace market information which was required to determine the cost of the internal operations. It also measure the efficiency of transforming materials leading to the final product. The factories were frequently situated far from the main office, and to judge the efficiency of the managers and workers at the factory, an information system was required. The focus of management accounting in the 1950s and 1960s shifted to the provision of information for planning and control purposes. The challenge of meeting global competition was met by introducing new management and production techniques, and controlling costs, through reduction of waste in resources used in business processes.

In the early part of the twentieth century, a merger wave lead to in the development of big multi divisional organisations. The diversity of product markets and scale and complexity of the production processes within these multi-activity companies created huge information processing problems. It made it exceedingly challenging for corporate top management to function efficiently and effectively in all the markets served by the companies. This changing environment required companies to invest in a separate and more appropriate