difference between cost reduction and cost control pdf

Difference between cost reduction and cost control pdf

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Cost Control and Cost Reduction

Cost Management VS Cost Control

Meaning of Cost Control Cost Control is simply the achievement of predetermined costs. The Chartered institute of management account, London defines Cost control as the regulation by executive of cost operating and undertaking particular way such action is guided by cost accounting.

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Maintaining financial security for business operations of any size boils down to two essential tasks: Getting the most out of every dollar invested and finding ways to trim the fat in terms of spend allocation. Cost control is critical to enabling this, as is cost reduction. These are two different terms for a reason; they represent processes that, despite sharing some similarities, are wholly unique in terms of execution, features, and purpose. In fact, when it comes to the difference between cost control and cost reduction, there are several important ones to remember. While cost control is more of a proactive approach, outright reduction pertains to addressing existing spend problems. The process of cost reduction is more action-driven, focusing on delivering tangible results. It involves making long-term, usually permanent cuts to specific expenses.

Cost Control and Cost Reduction

Cost control is defined and understood as the process of regulating the costs of operating an undertaking. The process of regulation is guided by cost accounting. Further, cost control needs executive action. It does not come about automatically. Cost control is achieved by fixing standards of performance, collecting actual cost data for each area of responsibility, comparing actual data with standards and forwarding prompt report to top management highlighting the deviations from standards from immediate corrective action.

Cost management and cost control are two terms that often get mixed up. If you think about the words, what sounds better? Would you rather be in control or manage your costs? It turns out that cost management and cost control really are two different things, and yet they are equally important to have in place. In this article, we look at the difference and how they relate. Cost management is concerned with the process of planning and controlling the budget of a project or business.

Book: The Goal. Introduction A cost reduction program is a type of method which is to improve profitability of the organization or by expected to get a good result that flow to the bottom line of the financial statement and exempted from any serious damage to the organization itself. As this program is much more about reducing cost or reducing expenses of the organization, so a good cost reduction program is all about how to control the damage of an organization. Furthermore, a cost reduction program is said can be improved the profitability of an organization because by reducing expenses, profits are increased without making others changes. On the other hand, if the cost reduction program can matched with a sales improvement program and perhaps, finally it will get the double profit. A cost reduction program must be a complete plan that is results-oriented. A structured cost reduction program will put the company on track to achieve maximum profitability and achieve the highest performance.


These limits are usually stated as standard cost or target cost limits in a formal operation plan or budget. Cost control is the process of avoiding. Page 2. Effect of​.


Cost Management VS Cost Control

There is a difference between cost control vs cost reduction. Most people think that controlling costs and reducing costs are one and the same when, in fact, they can generate two totally different outcomes. You can get short term gains but, eventually, they fade. However, for the increased stock value to be sustainable they must grow revenue.

One of the major concern of the enterprise is to maximize the profit, which is possible only through decreasing the cost of production. For this purpose, two efficient tools are used by the management, i. Cost Control is a technique which provides the necessary information to the management that actual costs are aligned with the budgeted costs or not. Conversely, Cost Reduction is a technique used to save the unit cost of the product without compromising its quality. 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.

Cost control is simply the prevention of waste within the existing environment. This environment is made up of agreed operating methods for which standards have been developed. Business firms aim at producing the product at the minimum cost. It is necessary in order to achieve the goal of profit maximisation. The success of financial management is judged by the action of the business executives in controlling the cost.

Difference Between Cost Control and Cost Reduction

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3 comments

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  • Indilasec 05.04.2021 at 21:04

    Cost control and cost reduction are two terms that are sometimes used interchangeably; however, they have different meanings.

    Reply
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