Accounting Knowledge: Cost Effective Principle

The principle of cost-effectiveness refers to the principle of making a financial decision more effective than cost, that is, the expected benefit of a project is greater than what it needs.

Under the condition of market economy, the aim of enterprises is to pursue maximum economic benefits.

It can be seen that under the concept of cost effectiveness, the absolute number of costs is not as low as possible. The key is to see whether the benefit produced by a cost (the savings of income or the total cost of an enterprise) is greater than that cost.

The concept of cost effectiveness is the important foundation of strategic cost management. The method of strategic cost management embodies the concept of wood efficiency.

While traditional wood management emphasizes the saving and saving of absolute number of trees, the result may be more than gain.

Traditional cost management is based on whether enterprises save or not, and unilaterally starts with reducing costs and even trying to avoid certain expenses, emphasizing saving and saving.

The purpose of traditional cost management can be simply summed up to reduce expenditure and reduce costs.

This is the narrow concept of cost theory.

In the market economy environment, economic efficiency is always the primary goal of enterprise management. In the cost management of enterprises, we should set up the concept of cost effectiveness and realize the pformation from the traditional concept of "saving and saving" to the concept of modern efficiency.

Especially in the gradual improvement of China's market economic system, enterprise management should be guided by market demand, and strive to make the enterprise get as much profit as possible by providing the market with the highest possible quality and the most perfect products and services.

In line with the basic requirement of enterprise management, the cost management of enterprises should be directly linked to the overall economic benefits of enterprises, and a new concept of cognition, namely, the concept of cost-effectiveness, should be taken into consideration of cost and its control.

All cost management activities of enterprises should take the concept of cost and benefit as the dominant thought, and analyze the necessity and rationality of "input" (cost) from the comparative analysis of "input" and "output", that is, strive to create as much value as possible at the cost of as little as possible, so as to obtain more economic benefits for enterprises.

Here, it is worth noting that the concept of "paying as little as possible" and "reducing expenditure and reducing costs" are different in concept.

"To pay as little as possible" is not to save or reduce costs.

It uses cost effective concept to guide the design of new products and improve the old products.

On the basis of investigation and analysis of market demand, it is realized that adding a certain function on the basis of the original function of the product will greatly increase the market share of the product. Then, although the cost will increase correspondingly to achieve the added function of the product, as long as the increase of this cost can enhance the competitiveness of the enterprise's products in the market and ultimately bring more economic benefits to the enterprise, the increase of the cost is a cost effective concept.

For example, if the enterprise promotes rationalization proposals, it will increase the expenses of enterprises, increase the expenses of new equipment, but increase the cost of equipment maintenance and improve the efficiency of equipment, so as to enhance the comprehensive efficiency of enterprises. In order to reduce the cost of inspection and improve the quality of products and other related costs, the market's competitive power and production efficiency will gradually increase. In order to fully demonstrate the feasibility and rationality of the decision-making alternatives, the correctness of the decision-making can be ensured, so that the enterprises can get the greatest benefit or avoid possible losses.