Cost Control/Cost Reduction

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Linto

Linto (Querist)
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20 April 2011
Hi,

What are the methods to control or reduce the cost of an organisation?

CA SURENDRA KUMAR RAKHECHA

CA SURENDRA KUMAR RAKHECHA (Expert)
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20 April 2011 There is altogether difference between cost control and cost reduction.

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Cost controls are applied where future costs are already determined and the same are to be achieved in line with the plans.

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Cost reductions are possible through research and development.

For example -

1. More efficiency in labour cost by change in manufacturing process,

2. Using alternate materials of low cost with/without use of new plant

and

3. Installation of new machinery of higher speed for production.

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Moreover -

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1. Change in means of finance to reduce interest burden.

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2. Increase volumes of business to absorb fixed costs on greater quantity of production.

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Home Work for you :

3. Think some more ways by applying above concepts.

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CA Ravi Sisodia

CA Ravi Sisodia (Expert)
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20 April 2011 cost control methods -- standard costing, marginal costing, ABC costing etc.

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CMA. CS. Sanjay Gupta

CMA. CS. Sanjay Gupta (Expert)
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20 April 2011 Cost reduction is the achievement of real and permanent in the unit cost of goods manufactured or services rendered without impairing their suitable for the use intended or diminution in the quality of the product. It use the techniques like value analysis, work study, standardization, simplification etc. It is a continuous process of critical cost examination, analysis and challenges of established standards. Each aspect of the business namely products, processes, methods, procedures is critically examined and reviewed with a view to improving the efficiency and effectiveness so that cost are reduced. It presumes the existence of concealed potential savings in norms or standards. It is a corrective action.

Cost control is a broader concept. It aims at optimal utilization of resources to enhance the operating income of the firm. It does not consider product attributes as given. It does not focus on cost independent of revenue. Cost management/control system establishes linkage between cost and revenues. It relates costs with product to have an insight into how various attributes generates revenue and create demand on resources. It provides information to manage/control product attributes to optimize resource utilization.

Traditional cost reduction systems focus on products, while cost management/control systems focus on products, markets, and customers.