Shri Vile Parle Kelavani Mandal’s

Narsee Monjee College of Commerce and Economics (Autonomous)

A.Y. 2021-22

Name of the Course : Financial Accounting and Auditing- Paper VIII- Cost Accounting
TYBCOM
Semester V

Title of the Project/Assignment

Explain Cost Controlling. Give and explain examples of companies who
recently controlled its significant costs.

Submitted by:
Sr Full Names of the SAP ID Division/ Contact Content
No learners Roll no. Number Contributed
1. SMIT PRITESH VORA 45208190886 F086 7021335754 Company
example-
McDonald’s
2. VIDHI SANJAY VORA 45208190887 F087 8369088362 Tools,
Importance,
Difference
3. ZIL SANJAY VORA 45208190888 F088 8879910190 Basic measures,
Techniques
4. AUM RAJUL VYAS 45208190889 F089 8369470825 Company
Example- Dabur
India Ltd.
5. SHUBHAM MANOJ 45208190891 F090 8369125996 Company
VYAS example- Maruti
Suzuki

Teacher In Charge: Kinjal Joshi Ma’am

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 TABLE OF CONTENTS

SR. TOPICS PG. CONTENT BY

NO. NO.
1. Introduction 4 Zil Vora- 088

2. Tools of Cost Control 5 Vidhi Vora- 087

3. Importance of Cost Control 5 Vidhi Vora- 087

4. Difference between Cost Control and 5 Vidhi Vora- 087

Cost Reduction
5. Basic measures to exercise effective 6 Zil Vora- 088
Cost Control
6. Cost Control Techniques 6 Zil Vora- 088

7. McDonald’s- Example of Cost Control 8 Smit Vora- 086

8. Maruti Suzuki- Example of Cost 9 Shubham Vyas-

Control 090
9. Dabur India Ltd.- Example of Cost 10 Aum Vyas- 089
Control
10. Conclusion 12 Zil Vora- 088

11. Webliography/ Bibliography 12 -

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PLAGIARISM REPORT

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 INTRODUCTION

• Cost control is the regulation and guidance through an executive action that is exercised
in respect of all the expenses incurred in a task. Cost control includes all measures and
procedures by which the cost of a task is kept under check and its objective is to make
sure that costs do not exceed a certain level.
• Cost Control is the process of collecting actual costs and collating them in a format to
allow comparison with project budgets. Cost control is important to keep a record of
financial expenditure for many purposes. It is simple method of identifying and
reducing firm’s expenses to increase profits.
• For this, the owner of the business compares the company’s actual monetary results
with the budgeted expectations and if actual costs are higher than calculated,
management must take action.
• Cost control and cost management are two terms that are used interchangeably.
Cost management is concerned with the whole process of planning and controlling.
Planning, estimating, budgeting, financing, funding, managing, and controlling and the
main activities of cost management. This ensures that the project can be completed
within the decided budget.
• Cost control, on the other hand, is concerned with measuring variances from the cost
baseline and taking effective corrective action to achieve minimum cost overruns. It
helps the management in regulating costs of a unit. The management uses the cost
control techniques to produce a product at the lowest possible cost by identifying and
eliminating any sort of unnecessary costs and yield more profits. This prevents cost
waste from taking place.

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 TOOLS OF COST CONTROL

Cost Estimate: This tool is used in the primary or initiation phase. In this phase, the users have
to evaluate the financial viability of a particular project.

Budget: This tool is used in the planning/primary phase. In this phase, the users plan out the
work by considering the estimated costs of overall project and converting it into a budget.

Cost Monitoring: This is used in the implementation/execution phase. In this phase, the user
monitors their costs to assure that there is no sort of overspending or unnecessary spending so
that they can keep the expenditures in line with the budgets.

Financial Evaluation: This is used in the Last/closing phase. In this phase, users evaluate if a
particular project has met the pre-determined financial targets or has fail to do so.

IMPORTANCE OF COST CONTROL

This system is highly helpful for companies in avoiding the unnecessary costs involved in a
particular project. With this, companies can eliminate wastage of costs in an effective manner.
It helps the users to evaluate the financial viability of a specific project. It helps the users in
finalizing the cost estimate and based on it to design a budget for a particular project. Users
can use a cost-control mechanism to regulate and monitor the costs incurred in a project from
time to time.

DIFFERENCE BETWEEN COST CONTROL AND COST REDUCTION

Cost Control can be defined as a technique that is used to control the costs, whereas cost
reduction is a process that is used to reduce or minimize the overall cost of production.

Cost reduction is a permanent process, whereas cost control is temporary in nature.

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 BASIC MEASURES FOR EXERCISING EFFECTIVE COST
CONTROL:

The cost control process involves setting of cost centres followed by pre-determination of cost
functions. The following are the basic measures for exercising effective cost control:
• Quantity and price standards should be estimated for or set for each physical unit. The
factors influencing variances should never be ignored (poor organisation and poor
materials, inadequate facilities).

• All concerned should be associated in determining standard costs to make the standards
realistic

• The data collected should be kept to a minimum because proper collection and
processing of cost control data are significant.

• The different prices, variances, mix, usage and efficiency should be considered,
whether they are relating to materials, overheads or labour.

• No amount of detailed analysis of the cost of variances can undo what has already been
done; however, control measures should ensure that such mistakes are not repeated.
The only way to prevent excess costs in practice is for the manager to take action before
the event.

• The essentials of effective cost control not only include flexible attitudes regarding the
standards set but also realistic targets (based on work study data).

COST CONTROL TECHNIQUES

STANDARD COSTING:

Standard costing is mainly a cost control technique. It is used either with the specific order
type, or with the process or orientation type of cost accounting system. Its main purposes are
to provide bases for control using variance accounting. It may be used for valuation of stock
and WIP and in few cases, for fixing selling prices.
Under standard costing system, a variance report, that reconciles the budget profit with actual
profit, is placed before the management with explanations for variances. A mechanism to
provide feedback to managers on variances from target results is what a variance reporting is.

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BUDGETARY CONTROL:

When we talk about the techniques of costing, budgetary control is a significant technique. A
budget is a quantitative statement prepared prior to the defined period in order to help achieve
certain goals of the firm. This budget can be in the form of monetary statement or quantities.

For instance, a production budget will deal in quantities of goods to be produced. On the other
side, a marketing budget will be a monetary statement. Another significant characteristic of a
budget is that it is prepared ahead of time. So the budget can be for the next quarter or the next
year or any such time period.

A budget will lay down the objectives of this period, and the firm’s techniques to achieve
them. Budgetary control is the preparation of budgets and analysis of the actual performance
of the firm in accordance to the budgeted numbers. If there is a lot of variation from the budget
the firm can take necessary steps. This is how budgetary control works.

INVENTORY CONTROL:
Inventory control is a process of checking a shop’s stock and to maintain the inventory at
desired levels, keeping in mind the best economic interest of an organization. In simple words,
inventory control is a process of ensuring that a business keeps the sufficient quantity of stock
to meet the forecasted demand with minimum holding cost.

Managing adequate stock is soul for managing inventory successfully. Overstocking will result
in additional cost for managing excess stock and cash flow blockage. On the other hand,
understocking results in loss of sale due to non-availability of stock at the correct time.

As a result, a business has to implement inventory control so that the right product at the right
place and the right time is available. Inventory control helps the firm in knowing the shortfall
and quantities to be ordered considering the net stock available. Thus, it makes sure that enough
stocks are maintained to meet customer needs, at any point in the given time.

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 MCDONALD’S
McDonald's is the world's largest restaurant chain by revenue, serving over 69 million
customers daily in over 100 countries across 37,855 outlets as of 2018. Although McDonald's
is best known for its hamburgers, cheeseburgers and french fries, they feature chicken
products, breakfast items, soft drinks, milkshakes, wraps, and desserts. In response to
changing consumer tastes and a negative backlash because of the unhealthiness of their
food, the company has added to its menu salads, fish, smoothies, and fruit. The McDonald's
Corporation revenues come from the rent, royalties, and fees paid by the franchisees, as well
as sales in company-operated restaurants. According to two reports published in 2018,
McDonald's is the world's second-largest private employer with 1.7 million employees
(behind Walmart with 2.3 million employees). As of 2020, McDonald's has the ninth-highest
global brand valuation.

• McDonald's is an American fast food company, founded in 1940 as a restaurant operated

by Richard and Maurice McDonald, in San Bernardino, California, United States.

• Rapid delivery of food – McDonald’s has optimized the processes of cooking food, making
them simple and easy to learn by all employees, reducing the learning curve as much as
possible.

• Training – additionally, the company has a division of labour that allows them to recruit and
train freshers as opposed to hiring already trained cooks, which allows them to pay low wages.

• Vertical integration – compared to competitors, McDonald’s owns the facilities that produce
the the ingredient mixtures for their products, further minimizing its costs.

In other words, the company manages to cut costs not only when it comes to raw materials and
optimized human resources, but also by high asset utilization – yes, the one we saw in the
previous point.
Because they are able to produce and deliver the food as fast as possible, they are able to serve
more clients as opposed to their competitors in the same amount of time

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 MARUTI SUZUKI – COST CONTROLLING AND REDUCTION

Maruti Suzuki of India is one of the country’s largest car-maker and has been taking a variety
of different steps to enhance localisation, increase in the productivity and make sure to reduce
the OVERALL COSTS in order to improve the current fiscal year’s margin. It is just in the
year 2018-2019 that the company reported an EBITDA margin of 14% which is down by 1.9%
from 15.9% which was 2017-18 EBITDA margin.

The company budgets the expenses and makes sure that the expenses are as per the standard
that is set for the company and on top of that find ways to reduce the costs incurred in the
standard and match the actual cost with the standard. This in particular is feature of Maruti
Suzuki Ltd. which is the reason they are leader in the automobile industry, they get adequate
profits by reducing costs at a given amount of revenue.

The CFO of the company recently said that they are working very hard on cost cutting and they
are putting in a lot of efforts on the cost side. They have reiterated that as a company they are
committed to work towards it and ensure improving the margins of the company from this
juncture.

The CFO has mentioned that they will work on the internal factors of the company and reduce
costs wherever they have control without worrying about the external factors such as foreign
exchange rates.

External factors exists but it would be important for company and its management to focus on
the things that are in control and work harder in terms of cost reduction and enhancing
productivity.

Increasing localisation is one of the most important part of this initiative

Localisation is the biggest driver in reducing costs of the company. Wherever the foreign
exchange rates have hit Maruti Suzuki, they are trying to make sure that the localize in that
aspect, therefore they are now looking at large targets for localization. They have been
successful in doing so back in 2013 during the slight recessionary phase. They localized some
of their aspects and this reduced their costs. They are continuing with the same strategy now.

Overheads are under severe scrutiny

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The overheads of the company are under scrutiny so that the wasteful overhead expenses can
be done away with it. Usually for a company going away with overheads expenses (which are
mostly fixed expenses) are very hard to go away with in short run, this is why this cost control,
reduction and re-structuring is a wider plan by the company to set realistic targets for overhead
expenses and control them. The company is looking forward at vendors in terms of more
productivity gains, what essentially they are doing is that they are looking for supply vendors
who are less costly and more productive in the sense that, more production is done with the
low supply costs.

The company said that they are doing a variety of things and they have been successful in their
strategy and hope that the situation improves from here on.
The company had noted a decline in net profit to Rs 1795.6 crore for the fourth quarter of 2018-
19 which is a 4.6% decline in net profit. For the entire year MSI posted a net profit of Rs 7500.6
crore which was down by 2.9% from the previous financial year.
Though for the year 2019-2020 the company faced a more decline in profits but it was on
account of general market demand reduction and subsequent effect of covid 19 in January and
February. But when analysed the company made severe reductions in cost in many areas of the
company.

COST CONTROLLING AT DABUR INDIA LIMITED:

Strategically Managing costs Cost controlling measures at DIL usually span across strategic
art movement coming up with, use of mark hedging mechanisms and e-sourcing initiatives. the
subsequent efforts of the corporate significantly stand go in this context: Addressing Input-
Price Inflation Apart from the staple FMCG things like dentifrice and shampoos, DIL includes
a major interest within the Indian beverage market, wherever it operates its vary of fruit and
vegetable based mostly beverages underneath the brand ‘Real’. Here forward cover for major
raw materials running upto 3 months has helped DIL combat food inflation and hold its costs
steady as compared to its rivals. Holding its worth steady in {an exceedingly in a very}
disruptive market helped maintain the market-share for DIL’s brands; complemented
effectively with an integrated approach to boost sales volume. Rising input costs are for the
most part slaked through such volume-driven growth. Here it should even be mentioned that
DIL has reworked provider networks, consolidated them and hedged risks through future
commercialism. Inside the company, the short and medium-term coming up with programmes

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that guarantee regular forecasts from its team of strategic planners at intervals every division
and department are particularly useful. 3-month forecasts on the business situation square
measure provided by these planners to the complete groups for taking effective measures to
combat inflation. Moreover DIL instituted “The Dabur Inflation Basket” for its most relevant
commodities, that a lot of} is connected to the Wholesale index of the country and facilitate
the corporate to reach actual inflation figures that facilitate it to set up ahead in an exceedingly
more targeted manner. Another important effort during this context has been consciously
making product wherever blends using Indian fruits and pulps turn out a similar quality of
output that may be created using exotic foreign varieties. This except curtailing the reliance on
imports helps to drastically slash down costs. Cutting flab Based on deep consumer insights,
DIL has known product and packaging options that the buyer doesn't want and cuts them down.
Similar observations have additionally been created in respect of the usage of energy and water
likewise as labour cost. This successively has been effective in reducing the operational value
well. the company has wanted to boost productivity in the slightest degree its producing
locations by deploying numerous cost reduction and energy saving initiatives that has
additionally resulted in an exceedingly sharp drop in its producing costs. In its producing unit
at Baddi, DIL initiated Total Productivity Management (TPM) principles through associate
degree external advisor, moving towards inflated automation and multi-operator construct.
(DIL Annual Report – 2008-2009) A new manufacturing technology for extraction of
medicative actives from herbs was extended at numerous locations throughout 2008-09,
generating potency in energy costs and providing cleaner and safer producing procedure at the
units

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 CONCLUSION

• Thus, we can conclude that just coming up with a project budget is not adequate while
your planning sessions. You have to keep an eye on whether the costs remain close to
the figures of your budget. Cost control is beneficial for firms because it helps them in
controlling and regulating the costs that are involved in a certain project. It also helps
in enhancing the creditworthiness of a firm and also contributes to the wellness,
prosperity and economic stability of the industry.
• The primary and main objective of any organisation is to maximize profit which will
sustain growth and existence of the business. This objective can be achieved by
effective cost control strategies. Cost control increases both the employee’s production
and organisation’s profitability.

WEBLIOGRAPHY/ BIBLIOGRAPHY

• www.bigcommerce.com
• www.efinancemanagement.com
• www.accountingnotes.com
• www.economicsdiscussion.net
• www.investopedia.com
• www.yourarticlelibrary.com
• www.mbaknol.com

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