The Impact of Applying Cost Management Tools in Cost Reduction in Service Companies

Abstract

The study aimed to measure the impact of applying three cost management tools namely, activity- based costing (ABC), value chain (VC), and target costing inputs (TC) in cost reduction elements, namely, raw materials costs (RMC), and conversion costs (CC) of five Jordanian service companies in the construction and health companies listed in the Amman stock exchange in Jordan. The study adopted a descriptive and analytical analysis, and a questionnaire form was designed and distributed to participants of cost accountants, financial managers, production managers, and general managers, who are working in the study sample totaling of sixty individuals. The researchers used percentages, frequencies and arithmetic averages in addition to the regression analysis to measure the impact of the independent and dependent variables of the study.

The study results showed the following:

1- participants perceived the application of ABC (an accurate assignment of  overheads), the VC (efficient supply of raw materials)  and TC (costs are led by Target prices) as between moderate to high levels (average results were between 3- 4.2).

2. there were significant impacts of the three modern cost management tools (independent variables) in cost reduction (dependent variables), with different levels of impacts for each element of the dependent variables, that is, the impact in the raw material costs and the conversion costs (at 4.1% sig.).

3. there were differences on the impact of cost management tools on cost reduction attributed to the qualification factor (at 1.2 % sig.).

4. costs reduction in service companies could be achieved through determining the difference between target prices and the profit margine to put pressure on management to control avoidable unavoidable items of raw materials and conversion costs.

In line with these findings, the researchers recommended the following:

1. more studies are needed on the application of modern cost management tools on other types of service companies with impacts on the profitabiltiy, cash flows, and the liquidity using questionnaire forms and content analysis, if possible.

2. adopting reqular and continuous training programs for specialized and staff positios in service companies to understand the application of modern cost management tools in service companies, other than health and construction companies.

Keywords: cost management tools, cost reduction, Jordanian service companies