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  Cost Control and Reduction

Introduction to Cost Control and Reduction

One of the significant functions of cost accounting is cost control and cost reduction. Cost control includes several actions taken in order to make sure that the cost do not rise across a specific level when cost reduction means decreasing the existing cost of production. Both these concepts are explained as follow:

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Functions of Effective Cost Control System

Cost Control:-

As described above, the meaning of cost control is keeping the expenses in limits or control. Cost control has the following characteristics:

A. Cost control is a constant process. It includes setting standards and budgets for deciding targets of dissimilar expenses and constant comparison of actual the budgeted and standards.

B. Cost control includes creation of responsibilities center along with noticeably described authorities and responsibilities.

C. It also includes, timely cost control reports depicting the variances among standard and actual performance.

D. Motivating and encouraging employees to achieve budgetary aim is also one of the important aspects of cost control.

E. in fact cost control not only means monetary limits on cost but it also includes optimum use of resources or performing similar job at same cost.

Cost Reduction:-

The meaning of cost control is attempts to reduce the costs. For instance, if the current costs are Rs. 1,000 per unit, attempts can be made to decrease it to bring it down below Rs. 1,000. For accomplish this, all out attempts will have to be made for acquiring this target. The objective of cost reduction can be acquired in 2 ways,

1st is decreasing the cost per unit and the 2nd one is get increase productivity. Reducing wastages, enhancing efficiency, searching for substitute materials, and a constant drive to decrease costs, can influence cost reduction.

The following tools and techniques are generally employed for cost reduction.

A. Value analysis or value engineering.

B. Setting standards for all elements of costs and constant comparison of actual along with standard and analysis of variances.

C. Work study

D. Job evaluation and merit rating

E. Quality control

F. Use of techniques such as Economic Order Quantity

G. Classification and codification

H. Standardization and simplification

I. Inventory management

J. Benchmarking

K. Standardization

L. Business Process Re-engineering.

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