Cost Management Definition
In business, cost management is the process of planning and controlling spending so that a company can operate within its budget. To do this, businesses need to track their costs, which can be divided into two categories: direct and indirect.
Direct costs are those that are directly related to the production of a good or service, such as raw materials, labor, and manufacturing overhead. Indirect costs are those that are not directly related to production, such as marketing, administrative expenses, and research and development.
Businesses use cost management to make decisions about where to allocate their resources in order to maximize profits. For example, if a company is considering whether to add a new product line, it will need to consider the direct and indirect costs associated with doing so. By understanding the potential costs involved, the company can make a more informed decision about whether or not the new product line is worth pursuing.
Cost management is an important part of running a successful business. By carefully tracking and managing their costs, businesses can stay within their budgets and make sound decisions about how to best use their resources.
