Accounting Best Practices, Fifth Edition

9–15. Review Cost Trends

The typical cost accounting report shows the current cost of each product, perhaps in relation to a standard cost that was put in place when the product was first created. Though this report does give management a snapshot of how existing costs relate to standards, there is no way to see if the cost was gradually increased or decreased from the preset standard cost, if the actual cost was ever close to the standard cost, or if there have been sudden changes in costs which are probably related either to step-costs in the overhead category (such as adding a new facility) or to material cost changes. Given the lack of information, management has no way of knowing if the current costing situation reflects a deterioration in costs or an improvement.

The solution is to switch to reporting based on cost trends. An example is shown in Exhibit 9.2. As noted in the exhibit, the report starts with a base cost established with actual cost data when the product was first released to production. Then the series of columns in the middle of the report show the historical total cost of each product, based on any time period that is most appropriate (quarterly costs are shown in the exhibit). Then the projected target cost that the company is striving for is noted to the far right of the report, with a final column noting the percentage difference in cost between the most recent cost and the target cost, along with the date by which the company is expecting to achieve the ...