Services – Costing

Value of Unique Costing Methods

(Unique Challenges Require Unique Methods)

Each methodology of costing responds to a specific question, situation, or objective. We can support you with one of several unique methodologies, each developed for specific business requirements and challenges. All these costing methods, when applied correctly, can provide improved decision making, improved competitiveness, powerful KPI’s, as well as defend the organization’s position as to how it conducts itself in the market place and regulatory framework. At Azure Management Services we work with your organization in choosing the most cost effective and appropriate method that will achieve these objectives: For more detailed explanation select the method:

• ABC Costing: (Activity Based Costing)
• Time Driven ABC
• Process Costing
• Regulatory Costing
• Standard Costing

ABC Costing: (Activity Based Costing)

In a business organization, the ABC methodology assigns an organization’s resource cost through activities to the products and services provided to its customers. ABC is generally used as a tool for understanding product cost, customer cost, process cost, and profitability based on your production or service processes. As such, ABC has predominantly been used to support strategic decisions such as pricing, outsourcing, identification and measurement of process improvement initiatives. ABC can be used to explain the total expenses of a company without driving inappropriate costs to a specific cost object such as product or service. You can use your ABC costing results to develop Activity Based Management.

Time Driven (TD) ABC

Time driven activity-based costing, as the name implies, uses time to drive resource costs directedly to objects such as transactions, orders, products, services and customers. The use of resource capacity metrics and time, as the primary cost driver, enables TDABC to skip the complex stage, in conventional ABC, of allocating resource costs to activities before driving them to the cost object (TDABM, Robert Kaplan, Steven Anderson; Harvard Business School Press). This is generally the simplest and easiest form or ABC allowing for quick implementation and acceptance by management and staff.

Process Costing

Process cost is the use of the appropriate costing techniques to establish the cost of all the activities within a process to develop an understanding of the total cost of the process and its components. It provides the ability to complete the economic analysis when trying to either optimize a process, develop a new process or compare a process’s current state with some desired future state. It also provides the framework for comparing different process methods in support of investment decision, competitive positioning, and insight as to how different cost drives impact the cost of the process. Process cost can either be measured or engineered based on the goal of the analytics.

Regulatory Costing

Regulatory Costing is born out of a statutory or legal need to support a public policy objective, operating constraint, legal challenge, or public scrutiny on the cost of your process. Examples may be the need to defend or refute cross subsidization, defend against legal claim on competitive practices, as well as public and political debate as to the facts of a situation such as ensuring compensatory pricing. This area of costing requires adequate research into the legal framework and precedents surrounding that framework to establish a defendable costing methodology and implement it. The methodology tends to be highly academic in nature requiring documentation, auditability, and defendability.

Standard Costing

This is the process of producing a set of standard costs that can be used to support day-to- day decision making. These costs need to be reviewed from time to time to ensure they are still reasonable. They can be used for bench marking as well as to compare what the standard costs are with the actual process expense or resources consumption rate thus providing very strong KPI’s on the economics and efficiencies of your process. Standard costs can be derived using any of the costing methods mentioned above as well as engineered. All of which will provide strong operational metrics.

Leverage the power of your business economics through understanding the nature of your cost structure