Strategic costing and financial reporting

Article Abstract:

The strategic cost aspect of a cost management system and the financial reporting system of a firm interact with each other because both measure the profits of the enterprise. The strategic costing module indicates the profitability of particular products and other cost objects while the financial reporting system offers information about the profitability of the firm for a certain period. They interact since computing the profitability of products sold for a particular period also generates an estimate of the gross margin for that period. The two measures typically match at the period level. However, there are instances when the two systems do not match, particularly if different definitions of product costs and thus profits are used. The ensuing conflict can be resolved by rewarding managers based on the profits in the strategic cost system only. They can also ensure that the financial reporting system cannot identify the cost of individual products.

Evaluation, Reports, Profits, Corporation reports, Company reports, Corporate profits

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Strategic costing and special studies

Article Abstract:

A capacity-adjusted activity-based cost model considers both the cost of resources used and the cost of resources supplied. Resource usage refers to the level of resources exhausted through the performance of activities while resource supply refers to the level of resources available for consumption. An issue that crops up with the use of capacity-adjusted activity-based cost systems is determining which of the two, resource usage or resource supply, is more appropriate for reporting strategic costs. A solution may be to use both. Resource usage is applied to the strategic costing system while resource supply is used in special studies conducted by the firm to investigate the economic consequences of decisions affecting resource usage. Special studies describe the interaction between resource supply and usage. They determine when a decision may change the demand for resource supply that deviates from that predicted through resource usage.

Methods, Analysis, Resource allocation

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