Business / Cost Management

Cost Management

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Autor:  anton  02 November 2010
Tags:  Management
Words: 1082   |   Pages: 5
Views: 519

On page 92 of our text it says that committed costs are costs arising from the possession of facilities, equipment, and a basic organization. Discretionary costs are determined by management as part of the periodic planning process in order to meet the organization’s goals. They have no obvious relationship with levels of capacity or output activity. Therefore my assumptions of Committed and Discretionary costs are as follows.

Committed Costs Discretionary Costs

Administrator $60,000 Assistant $35,000

Accounting and Billing $15,000 Two Secretaries $42,000

Consulting $10,000 Supplies $35,000

Salaries $46,000 Advertising and

Promotion $9,000

Transportation $10,000 Professional Meetings and Dues $14,000

Security $12,000 Two Social Workers $70,000

Custodial $13,000

Totals $166,000 Totals $205,000

When I first took a look at this assignment, I thought it would be a bit difficult to prove my point by using the text as a reference guide. I did that my citing the definition, but I am going to rely on what I know as a manager of a business to answer these questions and I was told that real world experiences are sometimes better that citing them from a text. Therefore, I am going to take a stab at this.

I feel that Dr. White needs to take a look at theses areas-

* Salaries (for assistant and two secretaries and for two social workers)

* Supplies

* Advertising and Promotion

* Professional Meetings and Dues

My first question as I was reading this assignment was: What do they need with an Assistant and two secretaries? Where do they hold their meetings? What do they need two social workers in each of the two areas for? Why are they spending $35,000 in supplies? I also referred back to my previous classes in team work and producing a greater output in half the time. This is not needed here. This is a mental health facility and as hard as it might be at times, they can cut the two secretaries to the administrator. I believe that one would suffice and the administrator has an assistant. They can also cut the social workers down to one per shift area, or one for community health and one for mental health. This outpatient clinic has operational costs of $371,000 with $205,000 being what I see as discretionary costs. We have almost 30 people in the bowling center and I know that including salaries, we are in good shape. As a matter of fact, my boss is a penny pincher! He is always asking me how I can prove that I need more paper clips when 100,000 walk out the door each year. I explained to him that not only do we use them in all areas of the bowling center for paper work, but every single time we make a bank deposit there goes more. It may seem kind of trivial, but do you see my point?

It is very difficult to have to make a decision to eliminate positions. I recently had to do that too. It definitely is not one of the perks of the job, but in some cases, it must be done. Salaries are flexible in some cases, and either cutting them or eliminating the positions altogether would save approximately $79,000 per year. I did this by eliminating the need for 1 of the 2 secretaries and 2 of the 4 social workers.

Now, let’s look at the meeting and dues costs. Where are these meetings held at; The Four Seasons? This is a lot of money on meetings and dues. Unfortunately, you cannot do a lot about paying out dues, but you can consider the functions you are joining. Joining the American Medical Association is a must but the county band boosters are not. If these meetings are dinner meetings, scale them back. Have these meetings at lunch where menu items are cheaper, or better yet, do a breakfast meeting where coffee and pastries are inexpensive. This is the kind of meetings we have, or we have meetings period. No food, just a bunch of people in a room with a boring power point presentation and there you go! These meetings could also be held quarterly instead of monthly. There are a lot of ways to scale the budget down here.

Finally, we come to supplies! These people are spending as much in supplies as in salaries. This amount is ridiculous, and for one I suggest a better drug rep! This is a medical facility, albeit a mental health one so a certain amount of supplies are needed. Bic is a great pen and places like the National Pen Company can help them scale these costs down and promote the facility as well. They can log on to and you have instant advertising and pens at the same time. These costs could be scaled back several thousand dollars, or at least in half. By scaling back in these areas, we are now operating at approximately $120,000 less than before.

I do not feel that all discretionary costs need eliminated. I fully disagree with the recommendation. If they eliminated all of them then they would be operating at 200,000 plus less a year. However, this is asinine, because in doing this, it would be impairing the clinic’s long-run prospects. (Managerial Accounting pg 93) I am simply recommending a reduction in certain areas of the clinic.

In any business, when one becomes accustomed to functioning in a certain manner; it is difficult to identify and separate what is costing you money, particularly if it is personnel. I am very familiar with this as this is one area where I am forced to make a lot of cuts. A lot of times it is like cutting your nose off to spite your face. I will honestly admit that this is one area that is the absolute hardest for me, as these people become like family. Advertising and promotional items are essential to any business but when you spend more money to promote a company, than what you are bringing in, you have a serious problem. Therefore, with this said, I would advise Dr. White to prepare for a reduced budget by analyzing what is costing her the most money, and make a decision in those areas as to how to scale them back. It will not be an easy task, but I feel that I have offered her some viable alternatives.

Works Cited-

Horngren/Sundem/Stratton-Introduction to Management Accounting, 2005, Upper Saddle River, New Jersey.

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