Goal Congruence

Why Does It Matter?

Cost Accounting Goal Congruence is essential because it allows a company to unify its financial information and share it throughout the entire organization. Cost accountants should work closely with business leaders to align different costs accounting goals, such as process improvement and strategic planning, then create an integrated plan for success. Cost accounting systems can provide valuable insight into a company’s efficiency and effectiveness in any number of areas, including:

• Costing improvement initiatives
• Cost controls and cost structure
• Cost control systems
• Reporting on financial performance, variable costs, fixed costs, efficiency ratios, or other areas of interest within the company or industry

How Do You Measure It?

There are several different ways to measure Cost Accounting Goal Congruence. Some companies use Cost Accounting Goal Congruence Indexes to measure how well their different Cost Accounting Goals are aligned. Cost accountants track the cost data of up to five Cost Accounting Goals across several areas, including:

• Operating costs and expenses
• Employee performance and training
• Meter accuracy and uniformity
• Material Cost Cost Analysis
• Equipment utilization Cost Analysis
• Plant or company policies, procedures, and strategies

Cost Index

Companies can receive a numerical value for each Cost Accounting Goal they track. The numerical values are averaged to calculate a Cost Index for each Cost Accounting goal. If the Cost Accounting Goals have a high average index score, then they are based on the same Cost Accounting Standards.

Cost Profiles

Companies can also track Costing Goals using a system of Cost Profiles. Cost profiles contain an array of information about each Cost Accounting Goal’s cost components, management, and budgeting. Some examples of cost profile categories include:

• Management structure
• Cost performance measures
• Cost control methods
• Cost control techniques

When Cost Accounting Goals have the same Cost Profiles, it means they are managed similarly. If they have different Cost Profiles, then they are managed very differently. In this case, companies would want to align their Cost Accounting Goals so that each one has a Cost Profile that is consistent with other Cost Accounting Goals.

Benefits of Achieving Cost Accounting Goal Congruence 

Companies achieve Cost Accounting Goal Congruence when they share similar Costing Standards and Cost Profiles, creating a uniform cost management system. Cost accounting goals should also be aligned with an organization’s strategic plan to provide accurate financial information that drives decision-making throughout the company. Cost accountants can also develop Cost Accounting Standard procedures that are used by other departments, creating common efficiency and effectiveness measures.

Types of Cost Accounting Goal Congruence

There are two types of Cost Accounting Goal Congruence: Cost Accounting Standard Congruence and Cost Performance Measure Congruence.

Cost Accounting Standards Congruence

It should be consistent because they help focus employees on common measurements and cost data. Each goal should have the same Costing Standards so that different Cost Accounting Goals are measured in the same way.

Cost Performance Measure Congruence

It is an important part of Cost Accounting Goal Congruence because this should be consistent across Cost Accounting Standards. Cost performance measures help employees compare different Costing Goals that are measured with different Costing Standards. If there are incongruences between Cost Performance Measures, Cost Accountants can develop Cost Accounting Standard procedures to ensure Cost Performance Measures are more consistent.

Examples of Cost Accounting Goals That May Be Incongruent 

Some Cost Accounting Goals that may be incongruent include:

Product Costing

This is a Cost Accounting Goal that has a Cost Profile of specific product inventory cost. This Cost Performance Measure should have Costing Standards for direct materials and conversion costs.

Process Costing

This is a Cost Accounting Goal that has a Cost Profile of specific process inventory cost. This Cost Performance Measure should have Costing Standards for direct materials, direct labor, and overhead costs.

Plant-Wide Cost Analysis

This is a Cost Accounting Goal that has a Cost Profile that includes the total cost in the plant. Plant-wide Cost Performance Measures include Total Operating Cost and Cost per Unit. These Cost Accounting Goals can be incongruent because Plant-wide Cost Analysis Cost Accounting Goal Cost Performance Measures do not include a specific product or process cost. This means that the Cost Performance Measures would not compare to Costing Standards for Product Costing and Process Costing Cost Accounting Goals.

Tips to Achieve Cost Accounting Goal Congruence 

There are several steps Cost accountants can take to ensure Cost Accounting Goals are consistent:

• Develop Costing Standards that reflect Cost Accounting Goal Congruence
• Ensure Cost Performance Measures are accurate and consistent across Cost Accounting Goals
• Align Costing Standards with the strategic plan of the organization

Key Takeaways

Cost Accounting Goal Congruence is when Costing Standards and Cost Profiles are consistent across Cost Accounting Goals. Cost accountants should align Cost Accounting Goals with an organization’s strategic plan to provide accurate financial information that drives decision-making throughout the company. Cost Performance Measures should be accurate and consistent across Cost Accounting Goals which should have Costing Standards.