| Description: |
The Cost Management function encompasses the capability to accumulate, recognize, and distribute the cost of an agency’s activities in the financial system for management information purposes. Managerial cost accounting concepts and standards for the Federal Government are prescribed in SFFAS 4, Managerial Cost Accounting Concepts and Standards for the Federal Government, promulgated by FASAB.
The term cost universally refers to monetary value of resources used or sacrificed, or liabilities incurred, to achieve an objective: such as to acquire or produce a good, or to perform an activity or service. However, the level of sophistication needed within the Cost Management function of the Core financial system is dependent upon an agency’s requirements and the nature of the programs within the agency. For example, if an agency’s primary mission is to produce a product or service for sale, the costing function typically will be accomplished in the Managerial Cost Accounting System that is integrated with the Core financial system. Programs with less crucial cost information needs might perform cost management functions by analytical or sampling methods.
The managers and executives who have the need for cost information should drive cost management in agencies. Regardless of agency need, the Core financial system must contain basic cost management functions. For example, SFFAS 4 requires that cost information developed for different purposes should be drawn from common data sources and that cost reports should be reconcilable to each other. Once management has identified the cost objects it needs and the corresponding structure has been set up in the accounting system, the system accumulates cost data accordingly. A cost object is any activity, output, outcome, or item whose cost and revenue are to be measured, such as organizational units, programs, projects, targeted outputs, specific contracts, specific customers, work orders, GPRA programs and activities, etc. After cost information is accumulated and prepared, it is distributed to managers. |