Final answer:
The Cost Management System (CMS) assists businesses in developing accurate product costs, assessing life-cycle performance, improving process understanding, controlling costs, measuring performance, and guiding strategic organizational decisions.
Step-by-step explanation:
The Cost Management System (CMS) plays a crucial role in any business by assisting management in various ways to ensure economic efficiency and the strategic adherence to organizational goals. One of its primary roles is to develop reasonable and accurate product/service costs, allowing for better pricing strategies and margin analysis. This involves understanding the relationship between production and costs, and that each factor of production like labor or materials comes with a corresponding factor price.
Another significant role of the CMS is to assess product/service life-cycle performance, which encompasses the evaluation of costs throughout the entire lifespan of a product or service. This could involve calculating the average profit and evaluating cost patterns to determine potential profitability. Moreover, the CMS is designed to improve understanding of processes and activities, which includes the use of mathematical models to estimate costs and analyze the link between different production techniques and respective costs.
In terms of cost control, the CMS is instrumental to control costs by helping create and adhere to a budget. This system also helps to measure performance, comparing actual performance to the standards and taking corrective actions when necessary. Lastly, the CMS plays a strategic role to allow the pursuit of organizational strategies by using tools like cost/benefit analysis to weigh marginal costs against marginal benefits, thereby aiding in decision-making processes that align with the organization's strategic objectives.