COST CONTROL VS.

COST REDUCTION

Presented by

AMIYA KUMAR SAHOO

PGDM,1St year student

INNOVATION-The B School

At-Muktapur,Po-Khurda

COST CONTROL

Executive Action by given members of an undertaking to maintain the cost with budget and/or standards established.

According to CIMA “ it is the regulation by an executive action of the costs of operating an undertaking particularly where such action is guided by cost accounting.

Requires close monitoring and management

Cost Control Process

1) Establishment of a Budget and/or standards.

2) Appraisal of performance

3) Corrective Action

4) Planning Again

Importance of cost control

Enables firm to achieving defined objectiveProper utilization of firm’s resourcesGrowth and survival of a firmMake the organisation efficient

Cost Reduction

• It is a systematic effort to improve profit margins by eliminating all forms of waste and unnecessary expenses without, at the same time, impairing the generation of revenue.

Importance of cost reduction

a) Improves the competitive capabilities and ensures survival, growth and prosperity

b) Optimum utilization of the resources

c) Provides reasonable prices to consumers

d) Preservation of the nations scarce resources

e) Keeps the price under control charges to consumer

f) Helps govt in controlling inflation.

Difference

COST CONTROLa. Prevention action(Tries to

keep costs confined to the limits set by norms)

b. It is the means to an end, namely cost reduction

c. Emphasis the present and past behavior of cost

d. Lack of dynamism

COST REDUCTIONa. Corrective

Action(permanent reduction in the unit cost of goods mfg.)

b. It begins where cost control ends

c. It emphasizes partly on present costs and mainly on future costs

d. It is a dynamic concept

Contd…

Cost controle)Establishing budget and/or

standard and initiating remedial action where there is a deviation of actual results

f)Limited applicability

g)Tools of technique-budgetary control, standard costing

Cost Reductione)Establishing by improving

upon the standards and the methods of production

f)Universal applicability

g)Tools of technique-value engineering, work study, operation research