Mr. Blessing, Adebowale AKINLOSOTU

Topics: Costs, Cost accounting, Cost Pages: 10 (3051 words) Published: January 27, 2014
COST MANAGEMENT AS A TOOL FOR IMPROVING ORGANISATIONAL PERFORMANCE

Blessing, Adebowale AKINLOSOTU

DEPARTMENT OF ACCOUNTING
FACULTY OF MANAGEMENT SCIENCES
UNIVERSITY OF BENIN

ABSTRACT
Cost management is an activity which functions as a strategy to cut down on all unnecessary costs so as to achieve a higher level of profit in organisational performance. The purpose of this study therefore is to examine the costs to be minimized as well as to identify the process involved in reducing costs and to investigate into the ways to eradicate the problem of excess expenditure or costs over revenue or income from sales in business organizations. It is therefore concluded that with meaningful recommendations among others, management of businesses should try to establish areas in which unnecessary costs can be minimized at regular basis in the course of daily business activities in other to increase or improve the profit or revenue base of and organization.

Keywords: Cost Management, Efficiency, Organizational Performance, CMS

INTRODUCTION
Cost management is especially useful in business activities because it allows for efficient capital utilization available to the business organization. In addition to this development, managers of either small or large scale businesses are set up for the common goal of minimizing costs and maximizing profits. Cost management, if properly practiced, will greatly improve efficiency in business performance. The process will help proprietors or managers of businesses to reduce unnecessary excess expenditures/costs over revenue or income from sales. Some of the costs to be minimized include purchase or cost prices, cost of material, manufacturing costs, fixed asset cost and administrative costs. All firms continually need to reduce costs, not only in times of recession, but also in periods of expansion and consolidation. Therefore, cost management or minimization is a process of cutting down on all unnecessary costs or expenses so as to achieve the ultimate aim of profit maximization. The reasons behind cost minimization and management leads to more efficient use of materials, maximization of profits, successful survival and growth of business entity and efficiency in overall or general performance of the businesses. For cost management to be effective, there are some key areas in which its applications is vital. Such areas include: reduction in the use of raw material, reduction of fixed assets costs, and reduction of administrative costs. Arising from the study, we shall discuss on the concepts of cost control, methods/techniques of cost management, application of cost minimization in business operations. THEORETICAL FRAMEWORK OF COST MANAGEMENT AND BUSINESS PERFORMANCE Cost may be defined in numerous ways. Lucey (1996) defines cost as the amount of expenditure (actual or notional) incurred on or attributable to a specified thing or activity. Lucey stresses further that costs include two components; quantity used and price, that is to say, always related to some object, product or service. It can also be described as the resources that have been sacrificed or must be sacrificed to attain a particular objective. In other words, cost is the amount of resources used for something which must be measured in terms of money. For example – Cost of preparing one cup of tea is the amount incurred on the elements like material, labor and other expenses; similarly cost of offering any services like banking is the amount of expenditure for offering that service. Thus cost of production or cost of service can be calculated by ascertaining the resources used for the production or services. Brown (1997) also defined cost as in economic sense, to mean the summation of all outlays of an operational nature. He further stated it to mean an amount which represents interest on investment and/or profits. According to Lucey, cost may be classified in numerous ways, but a fundamental and...

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