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06-02-2012 12:27 PM

Ian and Wayne: I like the distinction between data and information. "Data" has no character and just is. "Information" requires a value-added component so the information can be applied. Management accountants are just that: accountants providing insight through presentation of important information.
Activity-based costing really brings your point into focus. What causes the company to incur a cost or what activity benefits from the incurrence and application of the items involved? Cost allocation should follow the causal and/or beneficial relationships.

06-01-2012 08:36 AM

Agree with your comments very much Ian. I think many of us have experienced that frustration because the leaders of our business often neglect the big picture while burying us in the minutia. Numbers can be a powerful thing but everything has to be taken in context. I often refer to a time when our FP&A people would flag areas they wanted explanations for based solely on percentage change. We would get requests for changes that might 50 to 300% which sounds like a lot but if your base is only $10, a 300% increase means you are explaining a $20 change. On the other hand, you could have 3% change on an account of $20 million dollars which is $600,000 variance and much more worthy of investigation and comment.

It's about the big picture people

By Ian Bradley posted 05-23-2012 10:33 AM

  

As a management accountant at heart, I strive to help people understand how to grow the business profitably for the long term. Because of this I am constantly frustrated by people trying to make business decisions at micro levels, with no consideration of the bigger picture.

As cost accountants a lot of us spend an inordinate amount of time allocating/assigning cost in a futile attempt to get accuracy that does not exist in the first place. What we really need to do, is take a step back, consider the decisions being taken on the information we provide, and tailor the information to suit the decision at hand. It is for this reason that no one cost system is the Holy Grail and never will be.

Costs should only be included in any analysis if they truly change based on the decision.

For example, most companies include fixed cost in product costing (full absorption) and use these numbers to decide whether to make a product or source it. However, in most cases if you outsource the product the fixed cost, and a large part of traditional variable cost, will not go away and is irrelevant to the decision.

If the product is a large part of your capacity then you may indeed be able to trim your fixed cost through layoffs, but you need to look at this from a capacity level not a unit cost level. You need to understand the non-financial indicators involved such as total hours reduced (how many people does this account for, remembering you may not be able to eliminate part of a person), activities reduced such as movements around the plant and again translate this into people.

This is an example of a decision that is made every day in companies on a unit cost basis but should be done from a total impact to the company.

 It is our job as management accountants to educate the decision makers in these numbers. Step back, look at the information you are providing, and never take your eye off the big picture!

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