أنشئ حسابًا أو سجّل الدخول للانضمام إلى مجتمعك المهني.
The two most important functions of cost accounting are cost control and cost reduction. Cost Control is a technique which provides the necessary information to the management that actual costs are aligned with the budgeted costs or not. Cost Reduction is a technique used to save the unit cost of the product without compromising with its quality.
Cost Control is a process which focuses on controlling the total cost through competitive analysis. It is a practice which works to maintain the actual cost in accordance with the established norms. It ensures that the cost incurred on an operation should not go beyond the pre-determined cost.
Cost Control involves a chain of functions, which starts from preparation of the budget in relation to the operation, thereafter evaluating the actual performance, next is to compute the variances between the actual cost & the budgeted cost and further, to find out the reasons for the same, finally to implement the necessary actions for correcting discrepancies.
The major techniques used in cost control are standard costing and budgetary control. It is a continuous process as it helps in analyzing the causes for variances which control wastage of material, any embezzlement and so on.
Cost Reduction is a process, aims at lowering the unit cost of a product manufactured or service rendered without affecting its quality by using new and improved methods and techniques. It ascertains substitute ways to reduce the cost of a unit. It ensures savings in per unit cost and maximization of profits of the organization.
Cost Reduction aims at cutting off the unnecessary expenses which occur during the production, storing, selling and distribution of the product. To identify cost reduction, the following are the major elements:
Tools of cost reduction are Quality operation and research, Improvement in product design, Job evaluation & merit rating, variety reduction etc.
Key Differences Between Cost Control and Cost ReductionThe following are the major differences between Cost Control and Cost Reduction:
The two techniques cost control and cost reduction are used by many manufacturing concerns to diminish the cost of production. Cost Reduction has a larger scope than cost control as cost reduction is applicable for all the industries, but cost control is applicable only to the industries where pre- optimization of the cost which is not yet incurred is possible. Cost Control works as a road map for the organization to incur costs as per the set standard. On the other hand, cost reduction challenges the established standards by decreasing the costs and increasing the profit.