THE PERVERSE EFFECT OF MISUSED SYSTEMS COSTS FOR MAKING DECIONES. Reviewed by Momizat on . COSTS  SYSTEMS AND MISUSED Many companies are now with the need to compete on price in the market, so the cost issue is very important to them and very attracti COSTS  SYSTEMS AND MISUSED Many companies are now with the need to compete on price in the market, so the cost issue is very important to them and very attracti Rating: 0
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THE PERVERSE EFFECT OF MISUSED SYSTEMS COSTS FOR MAKING DECIONES.

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COSTS  SYSTEMS AND MISUSED

Many companies are now with the need to compete on price in the market, so the cost issue is very important to them and very attractive. Companies of course costs to establish systems of internal control. It is certainly good for a company to have implemented a system to control production costs, to oversee the relationship between the cost of activities with the value they deliver, to set goals and responsibilities, …

This article is not going to question the wisdom of using a cost system for internal control objectives of course share. But what is going to bring out is how it is sometimes used in a perverse way cost information for decision-making. As this is a short article just going to put concrete and practical examples in order to understand in an intuitive way.

FIRST ERROR.- The sale of many products and services many companies the cost of production start to put a price. This error is very serious because many times the client does not know the price, but price competition, or just simply compare the cost of acquiring the benefit it brings. Maybe the customer the price tells you the value of what you buy. Many companies compete for quality and services, ie, differentiation, and lower price may undervalue what they offer. Moral: the price is a strategic variable that is used beyond its cost, must be seen from the business and marketing strategy.

SECOND ERROR .- Many companies sell their products very expensive because they want to sell above cost of production, including fixed costs and not just variables. If this fails to sell at that price there will be no margin to cover fixed costs. If a company is not using its full productive capacity must consider the need to sell their products cheaper but above variable costs. The opposite would be terrible, at least it will sell higher full cost of the produce from the perspective of the full cost and will sell more expensive and thus less sell. Then the cost will go up by having to spread fixed costs among fewer units. The spiral is terrible.

THIRD ERROR .- Many companies do not take into account the effects of global costs or beneficiios. For example a company may be making money selling its subsidiary commercial losing their own subsidiary. If you see the affiliate loses money and then closes it, the matrix will win the money he earned by selling the subsidiary. That is, if you see a part and not the whole, decisions can be wrong. Must be taken into account both strategic issues as the value of the overall gain or loss occurs.

FOURTH ERROR .- Calculate the cost of things and not the cost differential. For example, a company raises the decision between making a piece or outsource production to a workshop. The mistake would be to compare the purchase price with the cost of production as part of production costs, such as fixed, would exist if the company no longer manufactures the above piece. In this case it would have to do is calculate what would happen if you took the decision to subcontract. It should also be seen to what extent should outsource something that should control the company or on the contrary this is not important and does not need to control it too, all viewed from a strategic point of view.

FIFTH ERROR .- Many companies know they have limited resources in some aspect of production, shifts, machines, shelves, size of ship, truck capacity, and so on. Trying to sell because they have more margin on others who have little can be a mistake. Por ejemplo, una empresa que tiene como cuello de botella las horas que puede utilizar una máquina, podría estar decidiéndose por productos que tiene más margen de venta pero que sacan poca rentabilad por cada hora de la máquina. Claro aquí lo importante es la rentabiliad de la máquina ya que podría estar siendo capaz de producir mucha más producción aunque la rentabilidad fuera inferior.

Estos son algunos de los ejemplos en que utilizar el coste de producción para la toma decisiones puede ser pernicioso. Por supuesto que hay que tener en cuenta todo tipo de información, la contable y la de costes también, pero hay que reinterpretarlo con muchísima lógica y sentido común. Lo contrario sería tomar decisiones equivocadas. A veces estas decisiones equivocadas pueden afectar gravemente a la empresa.

Arriaga Associates is a consulting firm specializing in decision-making, both strategic consulting as in Marketing, both in operations and in training managers, ie, the coaching manager.

Jesús María Ruiz de Arriaga

Lawyer and Economist. Associate Director.

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