Cost Control and Reduction

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 –

Cost_control

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

j) Automation

k) Operations Research

Comments

  1. Hi Agastya,

    This is a good way to explain a novice understand the thin line of difference between cost control and cost reduction. Just to carry on with your thoughts, Cost reduction can eventually lead to cost reduction. But the reverse may not be always true since it may result in compromise on code Value Creation. There are few other techniques that usually Organizations adopt are:
    1. Benchmarking (Can be Internal or Extenral)
    2. SWOT Analysis, this is very true at every level, can it be for a Mergers & Acquisitions or repositioning itself, Production Planning, Undertaking Quality Control or Inventory Control

    We can think of having a separate post to focus on details of SWOT or Benchmarking

    You are doing good job, Keep going

    Thanks
    SRK

  2. gowtam muktevi says:

    hi
    got valuable information…
    thanx
    gowtam muktevi
    Manager (CMG)
    Vizag steel

  3. B.MADHU SUDHAN says:

    it is very use full to all

Leave a Reply to A.V.Kiran Cancel reply

*