Cost and Performance Management

Running head: COST AND PERFORMANCE MANAGEMENT
COST AND PERFORMANCE MANAGEMENT
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COST AND PERFORMANCE MANAGEMENT1
Table of Contents
Introduction......................................................................................................................................2
Discussion........................................................................................................................................2
Cost measurement Analysis:........................................................................................................2
Areas of cost control....................................................................................................................6
Variance performance analysis....................................................................................................8
Recommendation for Cost Volume Profit analysis...................................................................11
Conclusion.....................................................................................................................................15
Reference.......................................................................................................................................16

COST AND PERFORMANCE MANAGEMENT2
Introduction
Cost Accounting is an essential branch of accounting that deals with recording all the cost
that is incurred in the business, classifying and allocating current as well as prospective cost. In
the given case Wyndham Hotel Pty Ltd. which is well known for its seashore facing full-service
room has planned to open a new hotel and has decided to be proactive for any expenses arising
from the new establishment. Cost control will be an essential tool for the company to reduce cost
and increase the profit and it shall start with the budgeting process.
Discussion
Cost measurement Analysis:
A cost driver is the factors that cause a change in the activity’s cost. These drivers are a
direct cause of the cost and it affects the total cost incurred. A rational business decision can be
made if a viable costing method is applied to get the correct cost (konda et al., 2014) Total
production cost is used to determine the selling price, thus if the cost is inaccurate, the profit
forecast will be inaccurate, and the whole system of accounting will be subject to errors. So to
maintain accuracy while allocating cost to a particular production lot, it will be beneficial to
follow Activity-Based Costing (ABC). Activity-Based Costing is a technique of cost
computation that is associated with individual product or line of production in a company based
on the amount of resources consumed by each activity (Cooper, 2017). It is a moderistic
technique of imposing fixed overhead to the product, based on the quantum of activity consumed
by the product. The main ultimatum of ABC costing is to allocate fixed cost as if they were
variable. Thus the cost of each activity is apportioned to that specific product, on the basis of the
resources consumed by cost drivers (Hoozée & Hansen, 2017).

COST AND PERFORMANCE MANAGEMENT3
There are three types of drivers for allocating indirect cost which are: the resource level,
cost object level and activity level.
Resource level cost drivers: It measures the consumption of work activities on the
resources. In this the cost of the resources are assigned to an activity. This includes Salaries,
supplies and other items. The wages of permanent employee and casual employees and
superannuation are included in this and this directly effects the performance of the management.
The reason that the actual expenses are higher than the budgeted can be because of:
 Employees pay structure and skill level may create an unfavorable variance
 Expenses on newly minted employees are higher with respect to their production.
 Poor scheduling can cause overlaps and inefficiency on the part of the employees.
 Faulty product material can also be the culprit, as it can reduce the efficiency of the
employees.
 Similarly, the entrance of new employees increases the cost of superannuation.
Cost object-level driver: This driver includes all the costing which indirectly affects the cost
of the product in aggregate. This includes all the expenses other than activity and resource level
cost drivers, and such expenses include bank charges, credit card commission, website expenses,
insurance expenses and other indirect expenses which includes telephone expense, electricity
expenses and general repair and maintenances. These expenses are necessary to be incurred for
the smooth running of the business. The main reason for unfavourable balance can be lack of
planning, poor forecast done by the management, poor maintenance by the administration which
resulted in a decrease in the machinery output and increase in the cost of repair and maintenance
and other fixed expenses.