CAT / FIA FMA Syllabus F. Performance Measurement - Contract and process costing environments - Notes ^{13 / 15}

In view of the large scale of many contracting operations, cost control is very important.  

Frequent comparisons of budgeted and actual data are needed to monitor:

• Cost over-runs

• Time over-runs

In addition, a note has to be made of:

1. ratio of cost incurred to value of work certified

2. amount of remedial work subsequently required

Effectively, the level of profit being earned on the contract can be checked as each architect or quantity surveyor’s certificate is received.

In addition, checks should be made on:

1. levels of idle time

2. amounts of wasted material

3. inventory levels

4. utilisation of plant

To keep these at an appropriate level, construction companies will use ‘network analysis’ to ensure that individual tasks are carried out in a logical order, workers are sent to contract sites at appropriate times and plant only sent when required.

As described earlier, process costing is used by is applicable where goods or services result from a sequence of continuous or repetitive operations or processes.

Several key performance measures are required:

1. Levels of abnormal loss

2. Levels of rejected production

3. Production time

In addition, inventory levels and cost targets would be monitored as well as any bottlenecks identified and removed.