Many decisions made by managers usually relate to how a company may reach its goals majority of which have financial aspects attached to them. These goals include revenue and profit goals/ targets in the company. The usage of Cost-based financial information can be increased in decision-making by having the company’s revenue and profit targets be regularly defined using the costs of offering services and products. Costs are a major component of these targets with any change in costs directly affecting both the revenue and profits. The costs of different operations in the company should also be analyzed before decisions are made about them.
The information required to make this happen is already available in the different departments that the materials for the products are purchased and also in the user departments of different services. The company’s procurement department may also serve as a central place to find the initial costs of all the materials used to make the various products sold by the company. These costs can be classified in different ways and used in decision making e.g. fixed costs, variable costs, overheads. These initial costs can also be used in different costing methods which will definitely affect the revenue made by the company and ultimately the profits. Examples of these material costing methods are Weighted Average, First In First Out (FIFO), Last In First Out (LIFO). For decisions on services rendered to the company, the user department can avail the cost of that service to the management for use in decision making where the managers will look at the effect of the service on the company’s processes and decide if it is viable to continue paying for the service or halt it.
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The Company has a few business activities it engages in that would work better if the costs were better known. One of them is the company’s outsourcing of the production of cakes requested outside the city. Some instances of outsourcing cake production have proved to be even more expensive than in-house cake production but were still carried out and a better understanding of the costs would have definitely led to different decisions being made about these particular outsourcing deals. Another business process that would be definitely made better would be the regular exhibition of the company’s products in the many cake festivals held in the state. The costs incurred in participating in some of these exhibitions are quite high and one may be deceived to think that the company has really made some money in the exhibition only to look at the revenue afterwards and notice that the costs were too high for the company to make any reasonable profits. If the costs were well analyzed, the decision to participate in some exhibitions would probably be changed.
