What you did in Costing? Why you did what you did?

Make or buy STTDM To save cost

ABC LTSDM To estimate the cost for pricing
Transferpricing Save cost To estimate the cost for decision making
Allocation, apportionment LTSDM
Cost Center LTSDM
Budgeting Save cost
Volume Variance and Price Variance Save cost
C V P Analysis STTDM
Costing is for articulating the financial reactions of your action
which you took (control) and which you will take (Decision Making)
Cost + Profit = Sales
Blessing of the customer - Cost reimbursement model
Sales - Cost = profit/Loss a) Cost Cutting
Curse of Competition; and curse of INEFFICIENCY b) Cost Control
(Cost going up due to factors beyond influence and control c) Cost Reduction
impact all the players)
Sales - Profit = Cost ->Allowable cost
Customer Value and Economic Value
(Any expense that adds value to customer is cost;
otherwise it is waste)
Strategic Cost Management
(Strategic) Cost Management is
Any Cost Improvement Economic Value
That Creates and Sustains Customer Value
Value for Customer
Better than the Competitor
- Hariharan
Sustain an Inequality: to sustain S-P = C
Value >Price > Cost
Consumer Surplus
Customer Value
Producers' Surplus
Economic Value
Value Marketing & Sales Mkt Survey, Competition
Design Mkt Survey, Competition, Own capability, Performance Measure
Quality Conformance to Specification
After Sales Service Customer Complaints, Performance Measurement
Project Manager Performance Measurement
Price Marketing Customer, Competition
Sales Performance Measurement, Competition
Finance Cost
Cost All Non-Finance Depts They cause the cost without understanding the effect
Finance They look at the effect (Cost) without understanding the Cause
V > P > C 39 Combinations of V, P and C
18 Combinations may yield profit
V and P C
>
Value Engineering
"Pure" Cost Reduction
Value Discovery
Breakthrough
V>P
P> C
P and C
1) Role Cost Information System Plays in Cost Management
Ctrl C Ctrl V first trimester
Case Study on Bridgewatercastings
Case Study on Label King
Recap of your first course





Buyer supplier interface
Design & Engg Operations Post Sales Util
by Customer
Cost Information System
2) Design and Engineering:
Target Costing and its integration with
other design methodologies
Case Study on Swatch
Case Study on Hair dye, Mosquito Repellent
3) Operations: Quantification of Lean initatives
Kaizen Costing
Case Study on Quantification of improvement at
Tier 1 Supplier by a Two-Wheeler OEM
4) Post Sales Utilisation by Customer:
Cost of Quality -> Total Cost of Ownership -> Life Cycle Cost Mgt
5) Buyer Supplier Interface:
Value Chain and Supply Chain
Inter Organisational Cost Mgt
Mkt Survey, Competition, Own capability, Performance Measure
They look at the effect (Cost) without understanding the Cause
Inflation
Demanding labour due to poaching
Losing on not having Economy of scale
Higher marketing efforts as the demand falls
Need to differentiate and hence higher variety and hence complexity
R and D efforts go up to meet the differentiation requirement
HR - Recuritment and Training goes up as attrition goes up
Cost Cutting: Cutting corners; at times flesh and muscle
Cost Control: Conformance to Plan
Standard is Rs.100 p u => Don't allow the cost to go beyond Rs.100 pu
(Budgetary control
Std Costing Intention is Stability - > It should be within a band of +/- 3% of Rs.100
Transfer pricing)
This is applicable for Engineered Cost -> eg RM - input to output relationship can be established
What about Discretionary cost -> eg R and D
Budget as a % of Sales -> Incur not more than Rs.100000 and
ensure you incur Rs.100000
Budget is based on Requirement or Affordabiliy w.e.l (not always)
Everyone is responsible for Cost Control
Cost Reduction: Questioning the plan Rs.100 is reduced to Rs.95
(Operating Level) Incremental Improvement is the Focus of CR
Ideation locally, validation globally and implementation
locally and severally
Standard is Rs.100 p u => Don't allow the cost to go beyond Rs.100 pu
Intention is Stability - > It should be within a band of +/- 3% of Rs.100
This is applicable for Engineered Cost -> eg RM - input to output relationship can be established
Budget as a % of Sales -> Incur not more than Rs.100000 and
Budget is based on Requirement or Affordabiliy w.e.l (not always)
File Name protocol: A1<Roll No>.pdf
Assignment 1: Value Discovery Not more than 1 page
Using 5W 1H describe a situation from your experience
where the Cost remained constant; but the Value enhanced for the
customer and the customer was willing to pay for that.
OR
A situation which you think has a potential to add value to customer
without increasing the cost
Assignment 2: Breakthrough Not more than 1 page
Using 5W 1H describe a situation from your experience
where the cost came down; but the Value enhanced for the
customer and the customer was willing to pay for that.
(Look beyond your company's boundaries and look at the value
enhancement for the ultimate consumer eg: Asian Paints Mera Wala Colour)