COST CONTROL

Cost control can be defined as the comparative analysis of actual costs with appropriate standards or budgets to facilitate performance evaluation and formulation of corrective measures. Cost control is keeping expenditures within prescribed limits.

2.‡ Cost control has the following features: 1.Follow-up . 4. . 3.Formulation of standards and budgets.Creation of responsibility centres.Timely cost control reports. 6.A systematic and fair plan of motivation to encourage workers to accomplish budgetary goals.Formulation of corrective measures. 5.

.‡ Cost control does not necessarily mean reducing the cost but its aim is to have the maximum utility of the cost incurred ‡ The objective of cost control is the performance of the same job at a lower cost or a better performance for the same cost.

. ‡ The goal of cost reduction is achieved in two ways(i)by reducing the cost per unit and (ii)by increasing productivity.COST REDUCTION ‡ Meaning ‡ Cost reduction may be defined as an attempt to bring costs down. ‡ Cost reduction implies real and permanent reduction in the unit cost of goods manufactured or services rendered.

‡ Reduction of costs due to external factors such as reduction in taxes.increasing productivity.search for cheaper materials.do not come under the concept of cost reduction.improved standards of quality. .grant etc.improving operations.‡ The steps for cost reduction include elimination of waste.government subsidies.finding other means to reduce unit costs.

.Cost control process involves (a)setting targets and standards (b)ascertaining actual performance (c)comparing actual performance with targets (d)investigating the variances and (e)taking corrective action. 1.Difference between Cost Control and Cost reduction ‡ Cost control aims at controlling costs within prescribed limits with the help of budgets and standards.

It challenges standards and assumes existence of concealed potential savings in the standards.Cost control aims at achieving standards.Cost reduction is the final result in the cost control process.1.Cost reduction aims at improving the standards. 2.It assumes existence of standards.Cost reduction is not concerned with setting targets and standards and maintaining performance according to standards. 2. .

Cost reduction is continuous.dynamic and innovative in nature.In cost control.Cost control is a preventive function.there is always assumed a scope for reducing the incurred costs under controlled conditions.looking always for measures and alternative to reduce costs.3.Cost control follows a conservative procedure and lacks dynamic approach. . 3.Cost reduction is a corrective function.In cost reduction. 5. 5. 4. costs are optimised before they are incurred . 4.

6.Cost reduction is applicable to every activity of the business.Cost reduction adds thinking and analysis to action at all levels of management.Cost control contains guidelines and directive of management as to how to do a thing. 7. 7. 6. .Cost control is generally applicable to items which have standards.

Value analysis or value engineering 2.Production planning and control .Job evaluation and merit rating 4.Tools and Techniques of Cost Reduction Generally speaking.the following tools and techniques are used for the purpose of cost reduction: 1.Work study 3.

Use of better technology 11.Operations and method study 7.Rationalisation 8.5.Economic order quantity 10.Standardisation .Organisation and method study 6.Quality control 9.Mechanisation and automation 12.

Simplification 14.13.Classification and codification 15.Market research 18.Inventory management and control .Variety reduction 16.Improvement in the design of a product 17.

Administrative areas .Cost Reduction Areas 1.Product Improvement 2.Production methods and layout 3.Marketing areas 4.

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