CIMA P2 Syllabus A. Managing The Costs Of Creating Value - Design decisions, Cost driver analysis and Performance evaluation - Notes ^{8 / 11}

At the design stage there is decided about approximatelly 80% of product's costs

It is therefore necessary to consider cost drivers already in this moment.

Organisation might choose to produce low cost products that still satisfy customers needs.

At the design stage product costs can be reduced by:

1. using fewer components

2. using standard components

Cost driver analysis investigates the relationship between cost drivers and their related costs.

4 categories of activities

1. UNIT LEVEL - the cost driver is a unit, costs are direct material and labour

2. BATCH LEVEL - the cost driver is a batch, costs are purchase orders, inspections, set-ups etc.

3. PRODUCT LINE LEVEL - the cost driver is a product, costs are equipment maintenance, product design etc.

4. ORGANISATIONAL/FACILITY LEVEL - with no specific cost driver, costs incurred are depreciation of building, advertising etc.

It is important to understand that even when organisation level costs are not product-related, it still influence profitability significantly and therefore management attention must be paid here.

ABM can be use to reward employees for developing new skills or accepting new responsibilities.

Performance measurement is relevant in terms of:

1. VOLUME - focusing on throughput and capacity utilisation

2. TIME - speedy response to customer requests

3. QUALITY - enhancing customer satisfaction

4. COST - per particular cost driver