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Cost Management Guidebook #361526

Course Overview

Credit

Amount

CPA

Course Author: Steven M. Bragg, CPA Field of Study (CPA): Finance

Course Description

Course publication/revision date: This course was updated on 9/28/2026.

The Cost Management Guidebook shows how to stay competitive by paring away nonessential costs. It discusses how to examine the cost structure of a business in order to better understand which costs must be incurred and which can be reduced. Hundreds of specific cost reduction tips are covered in all areas of a business, including compensation, sales, production, procurement, and administration. There are extensive discussions of asset reduction techniques, as well as cost management reports and measurements. This course is the essential toolkit for anyone who is serious about managing costs.

Table of Contents

Chapter 1 - Overview of Cost Management1

The Strategy of Cost Management	1
The Economics of Cost Management	3
How Costs Increase	4
Advantages of Cost Management	5
The Cost Management Environment	6
The Customer Service Conundrum	7
The Effects of Cutting Too Deep	7
A Note of Caution	8

Chapter 2 - Types of Costs10

Fixed Costs	10
Variable Costs	11
Mixed Costs	11
Step Costs	13
Marginal Costs	13
Differential Costs	14
Discretionary Costs	14
Committed Costs	14
Sunk Costs	15

Chapter 3 - Direct Costing as an Analysis Tool17

Overview of Direct Costing	17
Contribution Margin versus Gross Margin	18
Direct Costing as an Analysis Tool	19
Automation Investments	19
Cost Reporting	20
Customer Profitability	21
Profit-Volume Relationship	22
Outsourcing	24
Direct Costing Pitfalls	25
Increasing Costs	25
Indirect Costs	25
Relevant Range	26

Chapter 4 - Cost-Volume-Profit Analysis28

Contribution Margin	28
Contribution Margin Income Statement	29
Breakeven Point	30
Margin of Safety	33
Cost-Volume-Profit Analysis	34
Sales Mix	36

Chapter 5 - Target Costing39

The Basic Steps of Target Costing	39
Value Engineering Considerations	40
The Cost Reduction Program	41
The Milestone Review Process	42
Problems with Target Costing	42
The Members of a Design Team	43
The Role of the Accountant in Target Costing	43
Data Sources for Target Costing	44
The Product Life Cycle and Target Costing	45

Chapter 6 - Cost Object Analysis47

Factors in Cost Object Analysis	47
The Assignability of Costs	48
The Customer Cost Object	49
The Employee Cost Object	50
The Product Cost Object	51
The Product Line Cost Object	53
The Sales Channel Cost Object	54
Cost Object Termination Issues	55
Which Cost Objects to Track	56

Chapter 7 - Constraint Analysis58

Constraint Analysis Operational Terminology	58
Overview of Constraint Analysis	59
The Cost of the Bottleneck	60
Local Optimization	61
Constraint Analysis Financial Terminology	63
Constraint Analysis from a Financial Perspective	63
The Constraint Analysis Model	63
The Decision to Sell at a Lower Price	65
The Decision to Outsource Production	66
The Capital Investment Decision	67
The Decision to Cancel a Product	69

Chapter 8 - Process Analysis72

Process Analysis Tools	72
Value Stream Mapping	72
Flowcharts	74
Run Charts	75
Check Sheets	76
Root Cause Analysis	77
Traffic Analysis	77

Chapter 9 - Zero-Base Budgeting80

Overview of Zero-Base Budgeting	80
The Zero-Base Budgeting Process	81
Step 1 - Develop Decision Packages	81
Step 2 - Rank Decision Packages	85
Advantages of Zero-Base Budgeting	87
Problems with Zero-Base Budgeting	88
Conditional Budgeting	88

Chapter 10 - Cost Reduction Strategy92

Failing Business Scenarios	92
Dealing with Unrelated Business Segments	92
Failing Business Model: Remain in the Same Business	94
Failing Business Model: Shift to New Model	95
Dealing with Expense Drift	97
Incorrect Cost Reduction Strategies	98

Chapter 11 - Compensation Cost Reduction102

Proactive Hiring Solutions	102
Temporary Cost Reductions	103
Permanent Cost Reductions	105
Productivity-Based Solutions	108
Total Labor Cost Analysis	109
The Downsizing Process	109

Chapter 12 - Benefits Cost Reduction112

Benefit Cost Sharing	112
Benefit Reductions	113
Benefit Exclusions	113
Benefit Aggregation Concepts	114
Benefit Terminations	114
Workers' Compensation Issues	115
Corporate Wellness Programs	115
Training Benefits	116
Eligibility Audits	117
Benefit Cost Administration	117
Other Cost Management Concepts	118

Chapter 13 - Sales and Marketing Effectiveness121

Sales Effectiveness Improvements	121
Marketing Effectiveness Improvements	124
Customer Service Issues	125
Product Return Issues	126
Raise Prices	127

Chapter 14 - Production and Maintenance Cost Reduction129

Production Cost Reduction	129
Complexity Reduction	129
Manufacturing Systems	130
Production Cells	131
Production Line Issues	132
Shift Issues	133
Quality Issues	134
Bottleneck Analysis	135
Power Reduction Issues	135
Outsourcing Issues	136
Inventory Reduction	136
Administrative Issues	137
Maintenance Cost Reduction	137
Equipment Maintenance	137
Maintenance, Repair, and Operations Procurement	138

Chapter 15 - Procurement Cost Reduction142

Purchase Requisition Procedure	142
Purchasing Procedure	146
Procurement Process Changes	150
Procurement Centralization	150
Supplier Relations	151
Consolidation Activities	151
Standardize Supplier Dealings	152
Integrate with Suppliers	152
Other Cost Management Opportunities	153
Total Cost Concept	154
Outsourcing Concepts	155
Spend Management	157

Chapter 16 - Administration Cost Reduction161

General Administration Cost Reduction	161
Accounting Cost Reduction	162
Accounts Payable	162
Auditing	163
Collections	164
Cost Accounting	165
Customer Billing	165
Fixed Assets	166
Payroll	167
Reporting	168
Systems	168
Human Resources Cost Reduction	169
If Human Resources is Supported	169
If Human Resources is Not Supported	170
Legal Services Cost Reduction	170
Information Technology Cost Reduction	171
Travel and Entertainment Cost Reduction	173

Chapter 17 - Facilities Cost Reduction176

Facility Location	176
Lease Rates	177
Facility Costs	177
Facility Usage	178
Furniture and Office Equipment	179
Projecting Future Usage	180

Chapter 18 - Finance Cost Reduction183

Banking Cost Management	183
Debt Management	184
Cash Management Cost Reduction	185
Investment Strategy	186
Leasing Cost Reduction	189
Insurance Cost Reduction	190
How to Operate with Zero Working Capital	190

Chapter 19 - Accounts Receivable Reduction193

Credit Risk Reduction	193
Payment Guarantees	193
Title Retention	194
Credit Insurance	194
Factoring	195
Letters of Credit	195
Export-Import Guarantees	196
Outside Financing	196
Distributor Sales	196
Adjustment of Days to Pay	196
Collection Tactics	196
Dunning Letters	197
Take Back Merchandise	197
Hold Orders	197
Split Payments	198
Postdated Checks	198
Promissory Note	198
Arbitration	198
Attorney Letters	198
Issue Small Claims Court Complaint	199
Collection Agency	199
Money Judgment Collection Activities	199

Chapter 20 - Inventory Reduction202

The Cost of Inventory	202
Product Planning	203
Purchasing and Receiving	204
Inventory Storage	205
Production	206
Fulfillment	206
Distribution	207
Inventory Disposition	208
Inventory Management Practices	208

Chapter 21 - Capital Budgeting Decisions211

Overview of Capital Budgeting	211
Bottleneck Analysis	212
Net Present Value Analysis	213
The Payback Method	214
Capital Budget Proposal Analysis	215
The Outsourcing Decision	216
The Post Installation Review	217
The Lease or Buy Decision	218

Chapter 22 - Cost Management Reports221

Expense Reporting	221
Payroll Reporting	222
Margin Reporting	223
Spend Reporting	226
Responsibility Reporting	227
Cost Reduction Opportunity Reporting	228

Chapter 23 - Cost Management Measurements230

Compensation Measurements	230
Profit per Person	230
Proportion of Pay at Risk	231
Employee Turnover	232
Benefits Measurements	233
Benefits to Base Pay Ratio	233
Employee Cost Sharing as Percent of Pay	234
Days Away from Work	235
Sales Measurements	235
Sales Productivity	235
Sales Effectiveness	236
Quote to Close Ratio	236
Production and Maintenance Measurements	237
Manufacturing Effectiveness	237
Throughput of Post-Bottleneck Scrap	238
Order Cycle Time	239
Procurement Measurements	239
Procurement Card Usage Percentage	240
Proportion of Spend Managed	240
Proportion of Spend with Preferred Suppliers	241
Administration Measurements	242
Administration FTEs per $1,000,000 Revenue	242
Administration Cost as Percent of Revenue	243
Transaction Error Rate	244
Facilities Measurements	244
Square Feet per Person	244
Cost per Square Foot	245
Finance Measurements	246
Proportion of Cash Invested	246
Average Interest Rate Paid in Excess of Prime Rate	247
Asset Measurements	248
Receivables Turnover	248
Inventory Turnover	249
Fixed Asset Turnover	249

Answers to Chapter Questions252

Glossary270

Index274

Course Details

Author: Steven M. Bragg, CPA

Steven Bragg, CPA, has been the chief financial officer or controller of four companies, as well as a consulting manager at Ernst & Young. He received a master’s degree in finance from Bentley College, an MBA from Babson College, and a Bachelor’s degree in Economics from the University of Maine. He has been a two-time president of the Colorado Mountain Club, and is an avid alpine skier, mountain biker, and certified master diver. Mr. Bragg resides in Centennial, Colorado. He has written more than 300 books and courses, including New Controller Guidebook, GAAP Guidebook, and Payroll Management.

Publication/Revision Date: 9/28/2026

Course Exam Questions (online): 85 (multiple-choice)

Program Delivery Method: NASBA QAS Self-Study

Available Formats of Course Text: PDF or PDF plus printed copy sent in the mail

Course Level, Prerequisites, and Advance Preparation Requirements

License	Course Level	Prerequisites	Advance Preparation Requirements
CPA	Overview	None	None

* This program is appropriate for professionals at all organizational levels.

Sponsor ID Numbers

National Registry of CPE Sponsors ID: 107615

State CPA Board Sponsor ID Numbers (where applicable)

Florida Division of Certified Public Accounting: 0004761

Hawaii Board of Public Accountancy: 14003

New York State Board for Public Accountancy: 002146

Ohio Accountancy Board: CPE .51 PSR

Pennsylvania State Board of Accountancy: PX178025

Texas State Board of Public Accountancy: 009349

Learning Objectives

As a result of studying the course material, you should be able to meet the objectives listed below:

Specify the advantages and dangers of having an active cost management program.
Identify the various types of costs, and how they are used.
Cite the applications to which direct costing analysis can be put, as well as any limiting factors.
State the components and derivation of the cost-volume-profit concept, and how it is used.
Identify the uses to which target costing can be put, as well as how costs can be altered to meet target costing goals.
Specify the costs that are associated with cost objects, and the decisions that can arise from cost object analysis.
Identify the key components of constraint analysis, and how profits can be improved under this type of analysis.
Cite the tools used to conduct a process analysis.
State the components of a zero-base budgeting system, and the situations in which zero-base and conditional budgeting can be used.
Specify the analysis tools to use for different cost reduction strategies.
Cite the types of cost reduction methods available when reducing compensation costs, and the side effects of using these methods.
State the methods used to reduce benefit costs, and the side effects of using these methods.
Identify the techniques available for increasing the effectiveness of sales and marketing activities, and the side effects of using these methods.
Identify the cost reduction techniques that can be used to reduce the costs of production and maintenance operations, and the side effects of using these methods.
Cite the key procedural steps and forms needed to maintain a proper system of procurement.
State the range of methods available for the reduction of costs for accounting, human resources, legal services, and other areas of administration.
Identify the cost reduction tactics available for managing facilities costs.
Specify the methods used to reduce finance costs.
Cite the range of techniques used to reduce the investment in accounts receivable, and the situations in which they are most applicable.
State the cost reduction concepts used to reduce the level of inventory, and the situations in which they are most applicable.
Identify the analysis methods used to evaluate prospective investments in fixed assets, as well as alternative forms of payment for these assets.
Discuss the reasoning behind having a post-implementation review.
Identify the key reports and report formats needed to support a system of cost management, and the situations in which these reports might be used.
Cite the most essential measurements used to evaluate the cost structure of a business, and the situations in which these measurements might be used.

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