If the manager cannot control cost their operating expense will be higher and higher and therefore reducing the profit of the firm. Cost control and cost reduction are twin objectives of management but their concepts, procedures and approaches are widely different. Cost reduction and control best practices provides financial manages with nononsense, balanced, and practical strategies that are being targeted and used nationwide for controlling costs by thousands of companies in areas such as human resources, compensation, benefits, purchasing, outsourcing, use of consultants, taxes, and exports. Cost control and cost reduction definition of cost control. Cost control and cost reduction management paradise.
Cost control is a preventive function as it ascertains the cost before its occurrence. The activity of decreasing per unit cost by applying new methods of production in such a way that it does not affect the quality of the product is known as cost reduction. Cima, london has defined cost control as the regulation by executive action of the cost of operating an undertaking particularly where action is guided by cost accounting cost control is a process which focuses on controlling the total cost through competitive analysis. Cost control by management means a search for better and more economical ways of completing each operation. Unit manufacturing cost, cycle cost, life quality loss cost. Cost accounting includes not merely the maintenance of cost records for cost ascertainment but also for cost analysis, cost comparison, cost control and cost reduction. The cima, london defines it as the guidance and regulation by executive action of the cost of operating an undertaking, particularly where such action is guided by cost accounting. Companies that are losing money, need to increase profits, or must become more competitive need to cut expenses in order to succeed. Cost reduction may defined as an attempt to bring cost down. Jan 02, 20 cost reduction in managerial economics the institute of cost and works accounts of london has defined cost reduction as the achievement of real and permanent reductions in the unit costs of goods manufactured or services rendered without impairing their suitability for the use intended. Effect of cost control and cost reduction techniques in. Cost planning, cost plan accuracy management, cost control, cost reduction, budget 1. This article contains mainly some of the techniques of cost control and cost reduction in a very simple and in laymans terminology.
It is a practice which works to align the actual cost in agreement with the established norms. Features of cost reduction cost reduction is not concerned with setting targets and standards. The chartered institute of management accountants of defines cost control as the regulation by executive action of the costs of operating an undertaking, particularly where such action is guided by cost accounting. Focus cost control focuses on the minimization of wastage than the reduction of cost. In these days of everincreasing costs the majority of promoters of building work are insisting on projects being designed and executed to give maximum value for money. Most people think that controlling costs and reducing costs are one and the same when, in fact, they can generate two totally different outcomes. The following are the major differences between cost control and cost reduction. Cost estimating and control to reduce expenditures a cost per direct labor b analyzing manufacturing costs c.
Cost control and its impact on the survival of nigeria firms. The adoption of cost control and cost reduction strategies in business organization has become essential in the economy of most business given he level of pritization in organization today, especially the manufacturing sector. Cost control aims at achieving the predetermined costs, whereas cost reduction aims at reduction of costs by finding new ways or methods to have continuous economy on costs. Tools and techniques of cost reduction accountingmanagement. Does cost control and cost reduction scheme affect the quality of the product of the company. Cost reduction is the final result in the cost control process. Cost estimation is not only getting the estimates right but managing changes to the quality and. Cost control is used to maintain the cost within the acceptable level and cost reduction is the permanent reduction in the basic or unit cost of product or services. The key difference between cost control and cost reduction is that cost control is the process of maintaining costs at estimated levels while cost reduction aims to lower unit cost of production without compromising on the quality.
At this juncture, it would be desirable to know the difference between cost control and cost reduction, so read out the article. Cost reduction means reducing cost associated with production or other cost activities without affecting the quality of product or service as well as activities. Mar 17, 2017 these two represent an integral part in cost accounting, gaining constant attention of management. Cost control and cost reduction cost accounting cost. The programme for cost reduction should be clearly defined and responsibilities delegated. This is a research report on finance project report on costing and cost reduction techniques by aditi shah in others category. There is a difference between cost control vs cost reduction. This environment is made up of agreed operating methods for which standards have been developed. Cost control, reduction and estimation in business.
The activity of maintaining cost as per the established norms is known as cost control. Cost reduction strategies for smes synergee limited. Cost control and reduction cost control and reduction refers to the efforts business managers make to monitor, evaluate, and trim expenditures. May 25, 2018 business is either subjected to profit or loss. Finance project report on costing and cost reduction techniques. The major projects report 2009 details the cost, time. Difference between cost reduction and cost control cakart. Replace only with the same orequivalent type recommended by the manufacturer. Sys 4096 bytes microsoft corporation, acpi operation. Cost reduction program should be run by purchasing economical and more useful material. Cost control and cost reduction free download as powerpoint presentation. Cost reduction can result in saving the product cost, manufacturing cost s, and life cycle cost.
Reduction meaning elements techniques essentials for success applications differences cost control a process of preventing costs from varying from the amount planned. So, cost reduction must be a genuine one and should aim at the elimination of wasteful operations, increasing efficiency and effecting genuine cost saving. Dear love786, cost control and cost reduction are the two most considered things in finance. Oct, 2015 cost control does not guarantee quality maintenance, however 100% quality maintenance is assured in case of cost reduction. There are two different concepts between cost control and cost reduction. But though it is largely true that if you look after the pounds the pennies will take care of. Organizing a costreduction program scrivener publishing. Cost control and cost reduction definition advantages and disadvantages variance analysis ratio analysis cost control techniques. Cost reduction techniques home lbj school of public. The purpose of the cost control report is to provide cost data for the continuing evaluation of the project.
But there are times when a certain condition does not support and. Basis of application cost control is routinely applied on a continuous basis. Conceptually, accounting is the discipline that provides information on which external and internal users of the information may base decision that result in the allocation of economic resource in society. Cost control is a process in which we focus on controlling the total cost through competitive analysis. Structured cost reduction structured cost reduction the government has stated that reducing the budget deficit is its most urgent priority. Allocation of responsibility of the various cost reduction levels of management is an important requirement for control of cost reduction of the operation and spheres under his control. In fact, cost control also known as cost management or cost containment. The upcoming difference will update you about the difference between cost control and cost reduction. As a result of reduction in cost, export price may be lowered which may increase total exports. Cost control for an engineering project is limited to the cost of labor, equipment, materials and site overheads.
Using a systematic approach to perform cost reduction not only yields cost improvement but provides decisionmakers with the tradeoffs involved in achieving these reductions. Cost control and its impact on the survival of nigeria. Elimination of excess or unnecessary costs in production and operation process by applying different methods and techniques is known as cost reduction. Organizing a costreduction program 7 with this information in an excel spreadsheet, it is a simple matter to sort the data its already been sorted in table 1. Cost control focuses on the minimization of wastage than the reduction of cost. To update the database of the company that will be used to estimate future works.
Cost control and reduction refers to the efforts business managers make to monitor, evaluate, and trim expenditures. Importance of cost reduction and control uk essays. This section of the report looks at mechanisms for cost reduction and how these might apply to ocean energy. If the manager cannot control cost their operating expense will be higher and. May, 2015 cost accounting includes not merely the maintenance of cost records for cost ascertainment but also for cost analysis, cost comparison, cost control and cost reduction. Any investment done by the management always thrives among the market to optimize its productivity and approaches to achieve profits. The process of identifying and eliminating unnecessary costs to improve the profitability of a business is know as cost reduction. Lifecycle cost refers to the specific costs of the product operation supplies. Difference between cost control and cost reduction with. Cost estimating and control to reduce expenditures a cost per direct labor b analyzing manufacturing costs c breakeven analysis. Cost control is the achievement of pre determined targets of costs. Differences between cost control and cost reduction. Read this article to learn about the difference between cost control and cost reduction. It is very important to develop cost reduction procedures because it increases the profit of the firm through reducing cost of production.
Cost reduction in managerial economics mba knowledge base. Proper check on inward material, control over warehouse and proper issuance of material, and effective material yield should be done. Finance project report on costing and cost reduction. Scribd is the worlds largest social reading and publishing site. Cost control is simply the prevention of waste within the existing environment.
Start with the biggest costs generally, it is wise to begin by looking at the biggest costs irst. Cost control is process of utilizing the available resource economically. The cost figures in the report do not have to be based on accounted expenses, but should be a reasonable estimate which will give a true picture of expenditures at the end of the reporting period. The first thing you need to know is that you cant grow a company by cost reduction alone.
Knowing how to implement effective cost reduction strategies can be the determining factor in the survival of a business. I am uploading a document which may give you better information. The importance of cost reduction programs within a company cannot be overstated. Cost reduction focuses on minimization of cost through new production process, improved plant layout, scientific material handling etc. Difference between cost control and cost reduction compare. Cost control aims at ensuring that resources are used to the best advantage. Cost control is achieving the cost target as its objective while cost reduction is directed to explore the possibilities of improving the targets or company profitability. What are the good examples of cost reduction and cost. Mar 15, 2016 cost reduction can result in saving the product cost, manufacturing cost s, and life cycle cost. Stanford university libraries and academic information resources. Cost control and reduction encyclopedia business terms. Search and upload all types of finance project report on costing and cost reduction techniques projects for mbas on. Economic order quantity eoq technique should be used. While cost control, regulates the action to keep the cost elements within the set limits, cost reduction refers to the actual permanent reduction in the unit cost.
Control of cost and time should be linked together. Target costing and kaizen costing monden, yasuhiro on. In finer terms, cost reduction is a systematic and corrective technique used by most of the firms to cut the inessential expenses of the goods manufactured and increase the overall profits in this process, the essential features and quality of the product are kept intact and is limited to the constant savings in the cost of production, administration, selling and distribution. Cost control is the procedure where by actual results are compared against the standards, so that waste can be measured and corrective action can be taken. Higher profit will provide more revenue to the government by way of taxation. Difference between cost control and cost reduction. The chartered institute of management accountants of defines cost control as the regulation by executive action of the costs of operating an undertaking, particularly where. Difference between cost control and cost reduction cost control cost reduction represents efforts made represents towards achieving a achievement in target. To indicate the trend for each cost code, that is, whether the unit cost involved has been increasing or decreasing evaluation of the effectiveness of cost reduction efforts. Lack of clearly defined responsibilities for achieving it cost reduction business management role cost reduction addressed via isolated multiple efforts addressing the same set of costs it cost reduction as a hobby attempting to utilize part time internal resources who are already committed and overworked. The cost estimate prepared for the project during the bidding process is the basis for cost control.
Following are the main differences between cost control and cost reduction. Cost reduction strategy within pro pdf xchange an effective control environment. Apr 19, 2017 while cost control, regulates the action to keep the cost elements within the set limits, cost reduction refers to the actual permanent reduction in the unit cost. In either case, however, cost control is a particularly important area of focus for small businesses, which. One way that companies can regain control over their costs is not only to assess these costs, but also systematically classify and identify product costs. Difference between cost control and cost reduction mba. There are several tools and techniques such as just in time system, activity based management, target costing, total quality management etc. These efforts might be part of a formal, companywide program or might be informal in nature and limited to a single individual or department. In terms of sustainability, the three types of costsshould take into impact account the on resource use and waste management.
515 342 1370 9 520 339 862 1211 712 199 150 128 614 1432 335 1250 428 228 1393 406 1498 231 1219 334 641 787 1177 1474 722 482 764 951 815 721 1362 695 310 1498 1373 636 582