Our Cost Accounting Services and How They Lead to Actionable Profit Strategies

Do you understand how costs affect your business strategy? The Whitlock Co. leverages our cost accounting expertise to help you analyze expenses. We give you the data you need to make growth-centric decisions for your company. Keep reading to learn more about how our cost accounting services work for your business.

What Is Cost Accounting?

Cost accounting tracks and analyzes your company’s costs. The goal is to help you make better decisions about business growth, revenue, and profitability by showing you where costs can be improved.

For example, a cost accounting analysis shows that labor costs, one of the largest single line items in a company’s expenses, outpaced revenue for two straight quarters. How should your business adapt? Do you need to find technology that repurposes or replaces staff? Or do you need to increase prices?

Our team provides a detailed and strategic approach to understanding and managing your costs. We’ll help you make informed financial decisions, improve profitability, and enhance overall operational efficiency at your company.

Detailed Cost Analysis & Tracking

We start with cost analysis and tracking by looking at cost structure. The Whitlock Co. will identify and categorize direct, indirect, fixed, and variable costs associated with your products, services, and operations. The goal is to give you a clear picture of where you’re spending money and how to identify areas for savings, including expenses for labor, facilities, technology, or processes.

Cost Segmentation

When we segment costs, it gives you a nuanced understanding of how each expense impacts your company’s financial health. For instance, distinguishing between fixed costs like rent and variable costs like raw materials provides insights into cost behavior under different operational scenarios.​ If your variable costs go up, where can you save money on fixed costs? If fixed costs go up, what variable costs can you reduce? The impact of each type of cost can determine how best to save money over the short and long term.

Cost Analysis Methods

Three common ways to look at your expenses include a cost-benefit analysis, a sensitivity analysis, and a break-even analysis. These methods allow us to identify inefficiencies, forecast future expenses, and determine the profitability of specific projects or products.

A cost-benefit analysis quantifies different variables across a project to determine its value. For example, you want to increase the output of a certain product or service based on a certain pricing level. Do the additional labor costs or project scope lead to the profit margin you want?

A sensitivity analysis showcases how an input changes variables and leads to a new output. For instance, how does paying for a new technological tool at $2,000 a month alter the profitability of a product or service? Can your company invest in a new tool at $1,000 a month and achieve the same results? Will you have to increase sales or prices to make this work? This type of analysis can test which variables have the largest impact on a certain project.

As you might expect, a break-even analysis highlights what sales volume or units of revenue a company needs to break even on a product or service. You might find that the easiest way to make this happen is to change prices. However, higher pricing could lead to risks associated with customers shopping for a better deal. Reducing costs may create a better outcome.

Monitoring Systems and Software

The key to any cost analysis is choosing a robust software and monitoring system that alerts you to potential challenges. Software platforms allow you to automate reporting features and establish internal controls. You can see real-time tracking of expenses and how to better manage them.

Regular financial reports generated through these systems keep you informed about the financial health of your company. The goal is to help you and your company stakeholders make timely decisions when deviations occur.

For example, your software knows that a peak season is approaching in three months. The past two years of data show that your company fell short of delivering 10% of its orders on time. The software points to a lack of staff needed to make the orders before the deadline. Will paying current staff overtime alleviate this scenario? How can your company weather this time?

One solution might be to hire temporary staff for the months of peak output. Of course, a challenging labor market might make this strategy a bit more difficult. Perhaps shifting hourly workers to salary might be a solution, which could mean promoting from within.

Accurate Cost Allocation & Control

Effective allocation of costs means optimizing company expenses across various departments, products, or projects. Our team can show you robust reports for allocating costs accurately so that expenses are properly attributed to their respective areas. Accurate cost allocation helps with budgeting, taxes, and strategy planning. The ultimate goal is to maintain profitability and make informed decisions about pricing, budgeting, and resources.

Categorizing Costs

We start by meticulously identifying and categorizing all costs associated with your operations. The Whitlock Co. will distinguish between direct costs, such as raw materials and labor, and indirect costs, like utilities and administrative expenses.

Cost Allocation Methods

Then, we use the right allocation methods to assign costs to specific products or services. One widely used approach, activity-based costing (ABC), assigns costs based on the actual activities that drive expenses. For instance, if your company manufactures multiple products, ABC would allocate machine maintenance costs based on each product's usage of machinery.

These reports can get as granular as needed. The more data points that are identified, the better. That’s why investing in the right software is important, giving you a more accurate reflection of the resources your company uses. These insights lead to better pricing and profitability analysis. ​

For example, a company produces standard and custom products. Standard products cost less and take less time to make. Customized items require more time and labor but have higher pricing. Which is more profitable? By implementing activity-based costing, we would allocate higher indirect costs to custom products because they require more raw materials, time spent, and labor. This precise analysis lets you and your teams set appropriate prices for customized products to cover their true costs and contribute to profitability.​

Cost Control Mechanisms

Cost control mechanisms allow you to monitor actual expenses against budgeted figures. When you identify variances, you can get to the root cause. For example, if utility expenses exceed projections, what causes them? Was it extreme weather? A busier season? A broken boiler? Is someone leaving a door open overnight? You don’t want your utility costs to rise on a regular basis.

Put cost control mechanisms in place to help alert you to potential problems before they get out of hand. Again, the right software can come through with the right analysis and alert system to put information in the hands of decision-makers.

Strategic Cost Reporting & Insights

The Whitlock Co. provides comprehensive cost reporting and insights to help you make the right decisions for your company. These reports include detailed breakdowns of cost structures, variance analysis, and profitability assessments.

We can help you understand the financial impact of your decisions and develop strategies to optimize costs across the next month, quarter, and year. Aside from reducing expenses, finding inefficiencies, and determining pricing models, our reports can help you support investment initiatives and compete in your target market.

Support Investment Decisions

Strategic cost analysis can support your decision to make potential investments. Comparing costs to revenue can include things like materials, labor, equipment, marketing, potential orders, time to market, and logistics. You can compare a new project's viability and prioritize investments accordingly.​

For instance, you want to make the case to investors and stakeholders as to why an investment in new equipment or software is a good idea. A cost-benefit analysis report can forecast revenue growth and profitability over the next month, quarter, and year. You can even present various viewpoints on the investment, showing how the investment’s ROI changes.

Enhance Competitive Positioning

Cost structures and analysis can enhance your competitive positioning. Perhaps a cost analysis report shows that lowering prices compared to the top three competitors in your space, at least temporarily, can lead to greater customer loyalty over the long term. A historical look over the past three years of costs and invoicing showed a lower pricing model led to higher monthly recurring revenue. That, in turn, led to steady business growth.

Reach Out to The Whitlock Co. for Cost Accounting Services

Do you need an audit to present comprehensive findings to stakeholders? Contact our team to request a consultation today.