Cost Control

“Cost Control & Cost Reduction” Submitted to Prof. Ganachari

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Group Members Names Amrita Chhabria Bhavesh Desai Arun Kadam Tushar Dhanu Vishal Manchanda

Roll Nos. 28 53 39 278 295

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Table of Contents • 3. 4. 5.

COST CONTROL COST REDUCTION IMPORTANCE OF COST CONTROL AND COST REDUCTION 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

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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.

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

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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.

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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.

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Benefits of Cost Control & Cost Reduction Benefits of cc & cr.doc  

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Cost Control v/s Cost Reduction Cost Control

Cost Reduction

1. It is the competitive analysis of actual results with established norms.

This process finds out the substitute by finding new ways or methods.

2. The variances are appraised and reported and necessary course of action will be taken to revise norms, standards etc.

The necessary steps are taken for further modification in the method.

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 basis. of a process in line with those standards. 4. The emphasis is on the present and past behavior of costs.

The emphasis is partly on the present costs and largely on future costs.

5. It attempts to achieve the best possible results at the least cost under given conditions.

Under this no conditions are considered to be permanent where a change will secure a lowest cost figure.

6. Cost control is a preventive function.

Cost reduction is a corrective function.

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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.

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Cost Control in Individual Cost Elements • • • • •

Raw material Wages Power & fuel Stores & spare parts Overheads

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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.

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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

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Feedback Control Process • feedback process.doc

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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.

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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

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Thank you !

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