A Crash Course in Cost Control Management

There’s been much ado recently about the difficulty of finding highly skilled candidates for finance and accounting jobs. While business analysis and compliance knowledge are at or near the top of the list of skills many CFOs need most, cost control management also ranks high. Companies perpetually need accountants who can find ways to derive the most profit from the firm’s processes and products while minimizing inefficiencies.

Businesses of every type and size use cost accounting to understand the expenses that go into producing a good or service, but the specifics and even the style of analysis can differ based on organizational structure and revenue streams.

Elements of Cost Control Management

Whether or not a business makes or manufactures a physical product, three broad categories encapsulate basic areas for defining cost controls: materials, labor and indirect expenses. Each one represents an area every business should monitor and analyze to keep costs to a minimum.

How to do this will vary from company to company, since every company or business sector defines controls for cost control management based on the particulars of the given domain, locality and economic factors that affect it. For example, the materials costs tracked for a neighborhood restaurant will be quite different from those monitored by a multinational car manufacturer. The factors influencing labor costs for the hypothetical automaker can have complexities relating to laws and employee costs of living, for example, that will not apply to the restaurateur.

Cost Classification and Analysis

Much as the way in which one firm defines its cost controls will not be the same as the next, how each approaches the classification and analysis of such data will differ. Some will group cost controls in a way that aligns readily with the financial accounting its business must do. Others will use one or some combination of these other approaches:

  • Traceability – Can the cost be traced directly to the object being produced?
  • Function – Is the cost associated with a particular function within the company? Which one: research and development, production, administration, sales, warehousing, distribution?
  • Cost behavior – Is the cost fixed regardless of production volume? Or does it vary depending on how many units are made in a given timeframe?
  • Ability to control – Can a management decision affect the cost?

The above list is just a sampling of the ways a firm might frame the classification of cost controls. The variety of analytical approaches is just as diverse with possibilities including variance analysis, throughput or activity-based accounting and lean methods.

Accountants looking to enhance their expertise around cost control management can access related materials from the Federal Accounting Standards Advisory Board. Attaining the certified management accountant certification or chartered global management accountant designation also can prove beneficial.