ACADEMIA Letters

Cost systems: A new approach

Pierre Mevellec

Usually cost systems are presented from the perspective of the computational technique to
obtain the cost of the products. It is possible to take a step up in abstraction and look at
cost systems as a business model. It then appears that all cost systems are the result of the
confrontation of two representations, that of the company and that of the products. The cost
calculation itself is the result of the confrontation of these two representations, which are also
two models (Mevellec, 20017)
Translated into a more informational language this gives the following diagram, a diagram
that will serve as a guide for further developments.
The representation of the object to be evaluated, the product or the service, is provided
by the extended nomenclature that provides the description of the resources necessary for the
development of the product or service, it is supplemented by an operating range that gives the
detail of the production process in the form of man or machine time.
The representation of the organization mobilizes two entities: the unit of analysis, the
smallest subdivision of the organization visible in the information system, and this unit of
analysis is characterized by its internal service production, which becomes a resource for the
development of the offer of products or services.
The meta-model contains one last entity: external resources, all of the resources used in
the company to develop its offer. These resources are described here as external because they
come from financial accounting.
The representation of the organization provides an explanation of the value creation pro-
cess through the assemblages of external and internal resources.
This revised cost system must contribute to three objectives: managing resources, in-
teracting with the environment and influencing behaviour. Only the pursuit of objective 2,
dialogue with the environment is addressed in this short text.

Academia Letters, April 2021 ©2021 by the author — Open Access — Distributed under CC BY 4.0

Corresponding Author: Pierre Mevellec, pierre.mevellec@univ-nantes.fr

Citation: Mevellec, P. (2021). Cost systems: A new approach. Academia Letters, Article 858.
https://doi.org/10.20935/AL858.

1
 Figure 1:Costing

Only the client stakeholder is taken into account, the shareholder is outside our scope of
analysis.
For the customer, the dialogue with the company materializes through a transaction on a
good or service. We can abandon the approach of classics (including Marxists) that saw costs
as the source of value that was to be recognized by the customer. It is therefore the latter that
is the source of the value. On the basis of the work of modern economists this value is either
an exchange value or a usage value.
If one accepts the exchange value theory then the price is equal to the value since it equal-
izes the good or service offered with another good, the currency. Value determination takes
into account multiple attributes such as quality, availability, image conveyed, resale value,
after-sales service, financing arrangements, etc.
If one follows the proponents of the usage value the price becomes an attribute among
others and the value will remain inaccessible to the company.
In both cases the core of value thinking is based on attributes. This is where the cost system
can make an interesting contribution. It can be double. On the one hand the cost system can

Academia Letters, April 2021 ©2021 by the author — Open Access — Distributed under CC BY 4.0

Corresponding Author: Pierre Mevellec, pierre.mevellec@univ-nantes.fr

Citation: Mevellec, P. (2021). Cost systems: A new approach. Academia Letters, Article 858.
https://doi.org/10.20935/AL858.

2
 Figure 2: Meta-model of cost systems

reveal attributes ignored by the company, on the other hand it must allow the evaluation of the
cost of these attributes.

Corporate representation and production of value attributes

When we talk about representing the company, we immediately think of the organization chart.
The latter formalizes the accountability system and the organization of human resources. The
latter have long been considered the only source of value creation, so it is natural that the or-
ganization chart has structured the cost systems. This situation was the only one until the very
end of the 20th century and is still very much dominant today. As long as the differentiation
of products and services could result in a measure in physical consumption (nomenclature)
and/or in the production process represented by human times (operational range) attached to
a mesh of the organization chart, all was well (Lebas, Mevellec, 1999). But in the 1970s, the
irruption of quality, just-in-time and other intangible or material-containing attributes under-
mined the relevance of the information provided by the cost system. Let’s take an illustration
known to all in the field of industrial production. To reduce their financial costs and risks,

Academia Letters, April 2021 ©2021 by the author — Open Access — Distributed under CC BY 4.0

Corresponding Author: Pierre Mevellec, pierre.mevellec@univ-nantes.fr

Citation: Mevellec, P. (2021). Cost systems: A new approach. Academia Letters, Article 858.
https://doi.org/10.20935/AL858.

3
automakers have asked their suppliers to deliver smaller batches of parts and more frequently.
But since the prices of these parts were negotiated on the basis of the unit cost which knew
only the material and direct labor, the cost of setting up the just in time was free for the car
makers. Their suppliers did not provide any support, nor theoretical or accounting to negoti-
ate a sharing of the new costs entailed by the implementation of the new attribute, the just in
time.
We know that over the past 50 years, the highlight of the evolution of business structures
has been the weakening of the production function in relation to other functions, research and
development, logistics, IT, Distribution, Marketing.
The hypothesis that can be made is that if these functions developed it is because they met
needs, needs that were not translated into the accounting information system, remained frozen
on the vision of the function of production as the only source of value creation.
The first step towards cost-value management (Lorino 1991, Lebas and Mevellec, 1999)
is to understand what the company is actually producing and to bring the cost system back in
line with this new reading. The basic assumption is simple: if someone or a group of people
is producing something it is that this thing has value for someone else whether it is inside or
outside the company.
Any productive cell identified is potentially a unit of analysis. To have this status its
perimeter must be demarcated, it must have a name and above all it must be able to measure
the volume of production that characterizes it. It is this production that is called an internal
resource.
This point being taken for granted raises the question of the relationship between the value
of the object supporting the relationship with the environment and the potential value at-
tributes that have been identified by the fine analysis of internal productions. Two major mod-
els are generally mobilized: the additive model and the combination model. In the additive
model the value attributes are independent of each other and add up to give the overall value
of the object. Simply put, this means that quality, time management and innovation need to be
analysed separately and independently of the support that transport them to the environment.
This is the approach that was used by all companies in the 1980s and 1990s when they began
to calculate the cost of obtaining quality.
The second option that admits that the value of an object is the result of a complex combi-
nation of weightings of the values of attributes is tricky, if not impossible to transpose into the
field of costs. Nevertheless, this vision can be used to try a richer approach to understand the
formation of value attributes. Instead of stopping at the unit of analysis and their production
of internal resources we can try to model the relationships between these units of analysis.
This modelling of cooperation between units of analysis takes us away from the organization

Academia Letters, April 2021 ©2021 by the author — Open Access — Distributed under CC BY 4.0

Corresponding Author: Pierre Mevellec, pierre.mevellec@univ-nantes.fr

Citation: Mevellec, P. (2021). Cost systems: A new approach. Academia Letters, Article 858.
https://doi.org/10.20935/AL858.

4
chart to get closer to real workflows and enriches our understanding of the formation of the
company’s offer.

Figure 3: Example of value-added processes

Here is, for example, a process highlighted in a small industrial establishment, specializing
in computer devices. What does this process tell us? That trades as diverse as those of quality,
purchasing, accounting and logistics cooperate daily to offer the production unit the parts
it needs. Thanks to the cooperation of these different trades the parts that are delivered to
the production unit are of quality, arrive on time and have been acquired in good economic
conditions. The process therefore does not deliver a value attribute but a bunch of attributes.
The cost of carrying out each of the unit of analysis that composes this process is known,
but no assumptions is made about the weight of their contribution to the value perceived by
the production unit. We have gone from an additive vision to a combination vision of value
creation.

Conclusion
Management control and marketing have a lot to gain from working together to improve their
management of value attributes. Without information from customer relationship manage-
ment (CRM) management control will have a hard time moving from the cost of the product
to the cost of customers. Similarly, to embark on new marketing approaches without agreeing
to leave the profitability per product is to make the company take risks. The challenges are
considerable, not facing them is the surest way to lead your business to a dead end
The other challenge is for the accountants, base on the meta-model, a universal computing
machine has been developed.

Academia Letters, April 2021 ©2021 by the author — Open Access — Distributed under CC BY 4.0

Corresponding Author: Pierre Mevellec, pierre.mevellec@univ-nantes.fr

Citation: Mevellec, P. (2021). Cost systems: A new approach. Academia Letters, Article 858.
https://doi.org/10.20935/AL858.

5
Bibliography
Lebas M. and P. Mevellec; Simultaneously Managing Cost and Value: the Challenge, Publi-
cation of IFAC, New York, 1999, also translated and published in Spanish

Lebas M. and P. Mevellec; 1979-1999: 20 years of management accounting projects Review

Accounting, Audit Control, No. 1 1999

Lorino, P. (1991). Strategic Management Control, Paris, Dunod Enterprise, 39-48.

Mevellec P. (2017) Cost Systems in Organizations, Discovery, Repères Collection, Paris,

Academia Letters, April 2021 ©2021 by the author — Open Access — Distributed under CC BY 4.0

Corresponding Author: Pierre Mevellec, pierre.mevellec@univ-nantes.fr

Citation: Mevellec, P. (2021). Cost systems: A new approach. Academia Letters, Article 858.
https://doi.org/10.20935/AL858.