Spanish Version

#330 - Cost Analysis for Management Decision Making

Course Description: 

Managers must constantly choose among alternative courses of action and make decisions regarding the use of scarce resources. What products should we make? What price should we bid on a contract? Should we accept a special order? Who is our most profitable customer?

Cost analysis provides vital information in determining the most appropriate course of action. Many managers use a full cost approach to analyze these types of situations. Full costs take into consideration the cost of all resources consumed to manufacture a product or provide a service. However, full costs may not be appropriate costing method for making certain decisions such as accepting or rejecting a special order, deciding what to produce in capacity constrained situations, or outsourcing products and services. In these situations, the use of full costs and particularly unit costs may lead managers astray. The decision maker should consider only those revenues and costs that are relevant and have a direct bearing on the situation at hand.

This seminar focuses on the preparation of cost analysis for common business situations. We will discuss an eight-step approach for developing costs that can be applied in any company or industry. You will learn how to calculate the contribution margin, breakeven point, margin of safety, and target income volume for products or customers. You will be taught how to construct and use a contribution margin income statement and how it differs from a traditional income statement based on a full cost approach. You will learn to apply a systematic costing approach to common business situations such as product or customer profitability, capacity utilization, make versus buy, and special orders.

The seminar will also cover pricing decisions. What influences pricing decisions? How does the time horizon, short-run versus long-run affect the pricing it? We will discuss the two major approaches to setting prices: the market-based and the cost-based approach and what aspects should be considered in applying these to your particular situation. We will also cover the concepts of target prices and target cost and how these can be used to identify opportunities for cost reduction to make your product more competitive.

 Pre-requisites:  This course is taught at an intermediate level.  Participants should have completed the course Understanding Financial Information, Basic Cost Concepts or their equivalent before taking this course.

Pre-work:  Not required. 

Who should attend: Industrial engineers, operations managers and supervisors, controllers, accounting managers and supervisors, CPAs, CMAs, financial accountants, financial analysts, cost accountants, costs analysts.