THE MANAGERIAL COST MODEL IS MORE TALKED ABOUT THAN PRACTICED
Carlos Roberto Kassai
SBPL? Planejamento Or?amentário | Custos | Pricing | Controladoria | Finan?as
WHAT WAS ONCE EASILY IDENTIFIED:
As Cost, Expense, and Investment, there now exists an interaction among these concepts, as if they were blending together.
This overlap has, in practice, generated doubts and confusion, which compromise the accurate analysis of the contribution margin—the true portion of the business used to cover fixed costs and generate economic and financial results.
And, relying solely on the classical definitions found in current textbooks may lead to the risk of improper allocations to the costs of products and services, undermining competitiveness. It is essential to identify these costs based on their behavior: whether they are Variable, Fixed, or Occasional.
It is as if, symbolically, the cost elements were interacting and giving rise to Cost Hybrids—[Carlos Roberto Kassai]—which, in each transaction, can exhibit the behavioral characteristics of both of their "parents."
VARIABLE COSTS:
At first glance, we can say that costs of a variable nature, which are easily identified without any doubt or confusion, belong to others and do not pose a significant risk to the company, as they should only exist with a sale or planned sale.
FIXED COSTS AND INVESTMENTS:
However, for fixed costs and investments that behave variably in each transaction or contract—whether to serve a client or a region—it is necessary to exercise heightened caution in the allocation criteria, or more precisely, in the identifications and measurements that must, scientifically proven, represent their use in a fair and accurate manner.
We have observed, within our extensive database of companies across all sectors we work with and monitor, both in Brazil and some abroad, a trend of increasing fixed costs. This is particularly true because variable costs—which constitute the largest portion of costs in most businesses—are being relentlessly reduced, breaking records daily.
STANDARD COST PER OCCUPATION?:
The Standard Cost per Occupation? [Carlos Roberto Kassai] emerged during one of our consulting engagements focused on diagnosing and defining cost models. As part of our working methodology, we established an internal Client Committee to review and approve all definitions. It was unanimously approved as a solution, particularly when the largest portion of cost is not, in fact, a cost, but rather an expense—of a fixed nature—and also an investment—of an occasional nature—that behaves like a cost, varying in relation to sales negotiations. This is the case with direct and indirect labor, which is of a fixed nature and requires computers—of an occasional nature, representing an investment—in businesses such as analyses and testing, software development, auditing, consulting, among others, which can be more or less significant.
This represents a vital and urgent enhancement for all costing methods, particularly the absorption costing of official accounting. The focus is on identifying and eliminating distortions in the allocation of fixed and occasional investment costs, which exhibit variable cost behavior, where rates undergo drastic fluctuations with changes in production volume, even though the product or service bears no responsibility for these changes. These burdens are highly detrimental to competitiveness, as rates increase precisely when sales decline—a paradoxical and critical moment when we most need competitive costs.
To address this, we propose a scientific model based on planning an ideal occupancy level, which will serve as the 100% reference for the divisor denominator—remaining constant over the period, even with fluctuations in operational volume—and will be used in calculating cost rates. However, in the event of operational volume fluctuations, the resulting difference, once recalculated, will be allocated as a corporate fixed expense, without penalizing products and services. This allows it to be strategically incorporated into the recomposition of the target margin, markup, or other adjustable percentages. This model aims to ensure stability and accuracy in the allocation of identified fixed costs and investments, even in dynamic production scenarios, while maintaining competitiveness.
In Summary:
A Warning About the Dangerous Asymmetry of Fixed Costs:
COST ASYMMETRY - Anderson, Banker, and Janakiraman - 2003 / Topic presented at the Cost Laboratory of USP by Master José Augusto de Souza Melo
Possible Alerts in a Real Case to Double Revenue in 5 Years In a real case where labor is relevant:
The Standard Cost by Occupation allows simulating sales growth by reallocating according to project volume fluctuations, part as project costs and the other remaining part as corporate expenses.
Recommended Alerts:
This article is based on practical experience, without mentioning any confidential names or numbers, which gives it a high level of relevance and usefulness.
By combining our business expertise with software implementation, we have witnessed, through company data, faster and more impactful results in our projects.
Working in this way is undoubtedly a great satisfaction for us.
We aim to contribute to transforming the world through the most genuine economic-financial concepts, whose evolutions, in my opinion, have not yet occurred exponentially as seen in other technologies.
We believe in the immense potential of this area and are committed to driving this evolution.
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Kind regards,
Carlos Roberto Kassai - [email protected]