Developing meaningful profitability maps cascading cost/benefit trade-offs

Article Abstract:

A strategic costing system is used mainly to create profitability maps which, in turn, are helpful in determining whether further cost analysis should be conducted. Such maps are part of a cascading cost benefit trade-off which seeks to improve a firm's profitability. The cascading cost/benefit analysis for strategic costing involves the creation of profitability maps using the company's activity-based cost system. These maps show the links between revenue generation and resource usage. They help management identify opportunities for enhancing the firm's profitability, and spot loss-making products that need to be remade or discontinued. The trade-off continues with more research on the impact of resource spending stemming from any decisions made based on the profitability map.

Planning, Usage, Profits, Cost benefit analysis, Maps (Geography), Corporate profits, Maps

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Activities: the focal point of total cost management

Article Abstract:

Total cost management (TCM) is a process by which company resources as well as the activities that consume those resources are accounted for. TCM is grounded in process value analysis, which is the basis of developing performance measures, activity based costing (ABC), responsibility accounting, and the framework for investment management. The use of ABC allows costs to be charged directly to products, eliminating the need to allocate or assign costs. The transition to TCM is a four step process that entails: assessing the business' environment, philosophy, organization, and operations; costing activities at the level at which costs are incurred; associating costs to products; and integrating financial data for use in both managerial and financial reporting.

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