One of the primary functions of cost accountancy is control and reduction of cost. While cost control deals with not allowing the cost to rise beyond the planned levels, cost reduction involves a real and permanent reduction in unit cost of production rendered without impairing their suitability for the use intended.
Cost control ends when targets are achieved whereas cost reduction has no visible end, it is a continuous process. In other words achieving targets is the objective of cost control while cost reduction focuses on challenging the targets thereby identifying opportunities to improve them.
Though cost reduction and control are efficient tools of management, both the concepts are different from each other in the following respects –
Tools used for cost reduction
There are various tools used for cost reduction. Some of them are listed below:
a) Budgets, standard costing and variance analysis
b) Standardization and simplification
c) Quality control
d) Work study
e) Job Evaluation and Merit Rating
f) Production planning and control
g) Inventory control
h) Business Process Re-engineering
i) Value analysis
k) Operations Research