Our positioning in cost pricing
Regarding missions related to cost prices, Akeance Consulting deals with finance management control directors, in both large corporations and medium-sized companies.
Obviously, manufacturing companies are our clients, even if sometimes we are contacted by some service companies.
Approach and content
Revising a cost price consists in reviewing all the cost elements of a manufactured product, i.e. direct costs through ranges and bills of material.
Our work regularly includes an in-depth analysis of the manufacturing process to (re)size the elements of man-time, machine-time and material consumed. Challenging a cost price means ensuring that its underlying physical measurement is correct, to obtain a reliable and permanent industrial standard.
On one hand, indirect costs allocation depends on the definition of "cost price" in the company. If the definition includes indirect costs, then the challenge of the work lies in the analysis and verification of the correct allocation keys.
In the same way, structural costs can be challenged through allocation keys to allow the elaboration of a "full cost", even if this approach questions Akeance Consulting (see our convictions).
It should be noted that a debate may arise between indirect costs and structural costs depending on whether the company carries out a process activity or not; in case of a process activity, the site management may no longer be considered as a structure cost.
In addition, these cost price missions involve a confirmation of the recommendations proposed through a "cost price closing" (as we speak of "cash flow closing") by reconciling management statements and inventories (including waste and other rejects).
Experience has shown that this reconciliation is a difficult exercise that is often not successful. Discrepancy can sometimes be explained, particularly in industries dealing with valuable materials/metals, by casting of material sold under the table.
This risk can sometimes be found on certain production sites, where management statements are significantly different from the physical reality. However, this must be demonstrated....
The difficult acceptance of deprivatiion and corruption
It is obviously difficult to raise these issues with a client. However, most (if not all) finance directors of international groups know very well what they are dealing with.
Sometimes, local corruption is organised (and this is even easier for calculating a costing price !). But let's be clear: these aspects have a direct impact on defining cost prices.
Should cost price calculation be regularly reviewed ?
The ideal is, of course, to check the cost price calculation at the end of each fiscal year.
However, it is too heavy for many companies to review their product ranges and nomenclatures. Nonetheless, a "flash audit" of the cost price at the end of a semester, every 2 or 3 years, seems useful.
Want to know more about cost price ?