Despite vast changes in business and technology over the past 50 years, the managerial costing practices used by most companies today have failed to evolve. Cost information used to support critical management decisions continues to be based on minimalist cost models deemed acceptable for financial accounting—cost models that fail to consider the complexities of operating in today’s environment.
The focus of this Statement on Management Accounting (SMA) is on cost modeling, which is foundational to having a managerial costing system that effectively supports an organization’s decision-making needs. Building on the IMA® Conceptual Framework for Managerial Costing (CFMC), it describes a six-step methodology that organizations can use to develop a costing model appropriate for their specific needs. Each step is explained in detail and illustrative case examples are provided.