What is Costing?
A costing of an organisation is an insight into costs, efficiency, productivity, profitability andsustainability of various products/segments of the company for enabling themanagement to assess the performance in the strategic and operational context. The aim would be to discover various drivers of costs and profitability and their impact on the performance variables with the objective of helping the organizations to improve profits and profitability; to optimize resource allocation and utilization thereof; to optimize the product and servicesportfolio; to monitor performance of the company in various areas; and toknow if company management is meeting its goals.
What is Internal Audit?
Internal Auditing is an independent,assurance, objective and consulting activity that is formulated to add value toand improve a particular organisation‘s operations.
Internal Audit Function: A function of an entity that performs assurance and consulting activities designed to evaluate and improve the effectiveness and efficiency of the entity’s operations, risk management, and internal control processes.
Internal audits are considered as a part of the overall system of internal control which gives the management an assurance concerning the control process in the organisation and helps detect inefficiencies or fraud early.
An internal audit is generally conducted with the aim to
How costing can achieve the objectives of internal audit?
How costing can be a solution in this pandemic situation?
1. Checking the feasibility of the business model
Considering the market is changing every week (and for the worse), it is imperative to reconsider the business model. This is a crucial time to track current financial metrics and cash flow. As the business key is its production, so as on this time it is crucial to optimise the cost of production and costing will be a chance for that and it will also help in checking the feasibility of business.
2. Tracking expenses against the revenue status
During this contagion, it is of utmost importance for businesses to conduct a proper assessment of their expenses as well as the actual revenues. This strategy can be implemented even when the pandemic effect settles.
So, all the expenses and revenues can be tracked in costing report as it will provide the product wise bifurcation and can help in decision whether that expense is necessary or not.
3. Plan policies for next 3 or 9 months
Since, it is difficult to gauge how long this epidemic will last, it is important to be prepared for all scenarios. If we consider it as a 3-month problem, an instant halt on variable expenditures like hiring, marketing, travel, etc. can help. However, if the crisis continues for 9 months to a year, entrepreneurs will have to reconfigure their business strategy to reduce the variable expenses, renegotiate fixed expenses (rent, salaries, equipment lease payments, etc.), and focus only on the crucial essentials for survival.
So, the costing report will provide the detail view of the expenditures based on which decisions can be taken regarding how much to reduce cost and what should be the percentage so that business remain sustain.