You are on page 1of 20

“Cost Control & Cost

Reduction”

Submitted to -
Prof. Ganachari

1
Group Members
Names Roll Nos.
Amrita Chhabria 28
Bhavesh Desai 53
Arun Kadam 39
Tushar Dhanu 278
Vishal Manchanda 295

2
Table of Contents

• COST CONTROL
3. COST REDUCTION
4. IMPORTANCE OF COST CONTROL AND COST REDUCTION
5. BENEFITS FROM COST CONTROL AND COST REDUCTION
PROGRAMMES
6. COST CONTROL V/S COST REDUCTION
7. COST CONTROL PROCESS
8. THE STEPS INVOLVED IN DESIGNING PROCESS OF COST CONTROL
SYSTEM
9. FEEDBACK CONTROL PROCESS
10. COST CONTROL IN INDIVIDUAL COST ELEMENT
11. COST REDUCTION PROCESS
12. COST REDUCTION PROCESS CONTAINS SEQUENCE OF STEPS
13. PRECAUTION IN IMPLEMENTATION OF COST REDUCTION
PROGRAMME
14. PLANNING FOR COST REDUCTION 3
Cost Control
• It is the prevention of waste within the existing
environment.
• It is the procedure whereby actual results are
compared against the standards so that waste can be
measured and where appropriate action can be taken
to correct the activity.
• It is the process of regulating the action so as to keep
the elements of cost within the set parameters.

4
Cont…
• This process is exercised by setting the norms, targets
based on past actual.
• It is the process of utilizing the available resources
economically.

5
Cost Reduction
• This involves the examination of the purposes for
which costs are incurred and, by a variety of means
eliminates or reduces the reasons for spending.
• The existing standards are closely examined at the
broad and detailed levels with a view to
improvement.
• It seeks ways to achieve a given result through
improved design, better methods, and new
coordinated set of contingent actions to achieve the
dual objective of reducing overall costs without
corresponding loss of efficiency.
6
Importance of Cost Control
& Cost Reduction
• Better utilization of resources
• To prepare for meeting a future competitive position.
• Reasonable price for the customers
• Firm standing in domestic and export markets.
• Improved methods of production and use of latest
manufacturing techniques which have the effect of
rising productivity and minimizing cost.

7
Cont…
• By a continuous search for improvement creates
proper climate for the increase efficiency.
• Improves the image of company for long-term
benefits.
• Improve the rate of return on investment.

8
Benefits of Cost Control & Cost
Reduction

Benefits of cc & cr.doc


 

9
Cost Control v/s Cost Reduction
Cost Control Cost Reduction
1. It is the competitive analysis of actual This process finds out the substitute by
results with established norms. finding new ways or methods.
2. The variances are appraised and The necessary steps are taken for further
reported and necessary course of action modification in the method.
will be taken to revise norms, standards
etc.

3. It starts from established cost standards It challenges the standards forth-with and
and attempts to keep the cost of operations attempts to reduce cost on continuous
of a process in line with those standards. basis.

4. The emphasis is on the present and past The emphasis is partly on the present costs
behavior of costs. and largely on future costs.
5. It attempts to achieve the best possible Under this no conditions are considered to
results at the least cost under given be permanent where a change will secure
conditions. a lowest cost figure.
6. Cost control is a preventive function. Cost reduction is a corrective function. 10
Cost Control Process
Steps involved in designing process of cost control
system:

• Establishing norms: To exercise cost control it is


essential to establish norms, targets or parameters
which may serve as yardsticks to achieve the ultimate
objective. These standards, norms or targets may be
set on the basis of research, study or past actual.

 
11
Cont..
• Appraisal: The actual results are compared with the
set norms to ascertain the degree of utilization of
men, machines and materials. The deviations are
analyzed so as to arrive at the causes which are
controllable and uncontrollable.

• Corrective measures: The variances are reviewed and


remedial measures or revision of targets, norms,
standards etc., as required are taken.

12
Cost Control in Individual Cost
Elements
• Raw material
• Wages
• Power & fuel
• Stores & spare parts
• Overheads

13
Cost Reduction Process
• The achievement of real and permanent reduction in
the unit cost of goods manufactured or services
rendered without impairing their suitability for the
use intended.
• Reduction in the cost of product must be brought
about by the elimination of wasteful and unnecessary
resources employed in its design, manufacture, sale
and distribution.

14
Sequence of Steps in Cost Reduction
Process
1.Analysis
2. Examination -
a) Vital activities
b) Secondary activities
3. Developing solutions
4. Selecting a Solution
5. Obtaining Agreement

15
Feedback Control Process
• feedback process.doc

16
Precautions in Implementing Cost
Reduction Programmes
• Cost reduction programme must be appropriate to the
organization.
• Its introduction and implementation must be planned
soundly.
• Resistance by employees to reduce costs, usually
because the nature and purpose of the campaign has
not been properly explained to them, and they feel
threatened by the change.

17
Cont…
• There should not be any overlap between the cost
reduction programmes or double counting of
reductions or savings.
• The success in one area is not severely hindering or
damaging other aspects of the business or that success
in one area is not being eroded by failure in another
area.
• The cost reduction measures should not have any
undesirable effects on external parties e.g., suppliers
of raw material, buyers of finished products etc.
18
Planning for Cost Reduction

1. Crash programmes
2. Planned programmes
3. Short range programmes
4. Long range programmes

19
Thank you !

20