Why is cost control important for Business to improve productivity?

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Cost Control

The essential Feature of cost accounting are determination of costs, planning, and control of cost, cost analysis and furnishing of information to management  for decision making and cost reduction . It would be seen that the main objective is cost control and the willpower of costs, and cost reporting are just tools or means to reach effective coat control.

 

Cost control is an important factor for managing projection and achieving goals of business. Covering processes and responsibilities destroy the very essence of cost control. Cost control by management means a search for better and more economical ways of completing each operation. The term ‘cost’ is most broadly used as the ‘money cost’ of production which relates to the money expenditure of a firm on. The process of controlling how much a company or organization spends so that costs are not superior than an agreed budget. The process or activity on controlling costs associated with an activity, process, or company.

 

If businesses want to improve productivity, they need to do cost control. It is identifying and reducing business expenses to increase profits. Cost control starts with the budgeting process. The cost concept can best be considered by saying that for determinations of accounting, all transactions are recorded at their monetary cost of achievement. The main benefit of putting cost controls in place is dropping your company's overall expenses. Cost control is an significant factor for preserving and rising productivity. Cost control   is measuring variances from the cost baseline and taking effective corrective action to achieve minimum cost overruns.

Cost control Monitor expenditures and performance against the progress of a project. Cost control is all changes to the cost baseline need to be noted and the expected final total costs are endlessly estimated. Cost control based on this analysis, corrective action might be required to avoid cost overruns. Cost control gives a company considerable effect over its cash flows and stated profits. A performance is to be measured with the help of reasonable criteria by cost control. Management can increase the productivity with available resources. 

 

Most of the enterprise wants to maximize the profit, which is possible by decreasing the production cost. Example: Business firms aim at producing the product at the minimum cost. It is essential in order to reach the goal of profit maximization. The achievement of financial management is judged by the performance of the business executives in controlling the cost. This has run to the development of cost accounting systems. Most of the enterprise wants to maximize the profit, which is possible by decreasing the production cost.

Cost Control is a system which makes accessible the essential information to the management that actual costs are associated with the budgeted costs or not. Cost Control does not guarantee quality maintenance of products. However, cost reduction assured 100% quality maintenance. Cost Control is Improving business cost- efficiency by reducing costs, or at minimum limiting their rate of development. Businesses use cost control systems to monitor, evaluate, and ultimately improve the efficiency of precise areas, such as departments, divisions, or product lines, within their processes.   

Cost control is the regulation by executive action of the costs of operating an undertaking, particularly where such action is guided by cost accounting .Cost control is exercised through numerous techniques some of which are standard costing, budgetary control, estimated costing, inventory control quality control and performance evaluation, analysis and reporting.

Cost control involves the following steps and covers various facets of management:

v  The step is to establish the plan. The plans or targets may be in the form of budgets, standards, estimates or even past actuals and may be expressed in physical as well as monetary terms. These serve as yardsticks by which the planned objective can be assessed quantitatively (planning).

v  The plan and the policy laid down by the management are made known to all those responsible for carrying them out. Communication is established in two directions, directives are issued by higher level management to the lower level for compliance and the lower level executives report performance to the higher level. (Communication).

v  The plan is given effects to and performance starts. The performance is evaluated, costs are ascertained and information about results achieved are collected and reporting. The fact that costs are being compiled for measuring performance acts as a motivating force and makes individuals endeavor to better their performances. (Motivation).

v  The actual performance is compared with the pre-determined plan and variances, i.e. deviations from the plan are analysed as to their causes. The variance are reported to the proper level of management. (Appraisal and reporting.)

v  The variances are reviewed and decisions are taken. Corrective action and remedial measuring, or revision of the target, as required, are taken. (Decision making).