Entrepreneurs undertake business activities with the expectation of making profits. Profits in case of an identified project are revenues minus costs. Economic theory tells us that if you want to sell more, marginal revenue decreases. Marginal cost may decrease or increase. Entrepreneurs make profits due to innovations and risk taking. Innovations are new methods or techniques or designs that give lower costs in doing an existing activity or they may offer new products that make new ways of consumption possible. In this article we focus on cost reduction innovations.
If we have to plan to reduce costs, we need to know what are our current costs. After we implement new methods ot reduce costs we once again have to measure costs to confirm that we actually had lower costs due to introduction of modified methods.
Thus to think, plan, and confirm we need cost facts.
Cost facts are produced by accounting persons, and now the specialists in this field are called cost accountants. Many companies have separate cost accounting departments.
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Overhead Costs
Index of articles on Cost Accounting, Costing and Cost Management
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