Table of Contents
What is Cost Control?
Cost control is a tool of management executives to regulate the working of the manufacturing concern. Under the globalize economy, mere planning is not enough. Efforts are constantly made to scrutinize the results of the workings. If so, out of control situations may be find out and eliminated immediately, with the help of cost control, the executives can limit the costs within the planned level.
Characteristics of Cost Control
The characteristics of cost control are presented below:
1. Delineation of Centers of Responsibility: Overlapping operations and responsibilities destroy the very essence of cost control.
2. Delegation of Authority: If persons are charged with responsibility without authority, the cost control will be ineffective. Hence, proper or adequate delegation of authority is necessary for proper cost control.
3. Measurement of Performance: A performance is to be measured with the help of reasonable criteria. Standard costing can be used as reasonable criteria. The person whose performance is being measured should participate in setting the standards.
4. Relevance of Controllable Cost: Only few costs are controllable at different levels of management. The management evaluates the performance of an employee with the help of costs incurred that are controllable.
5. Cost Reporting: Cost report provides a basis for effective cost control. Hence, if the cost reports is not prepared and submitted in time, the cost control cannot be exercised.
6. Constant Efforts: The measurement of performances, knowing functioning of manufacturing department and analysis of costs require constant efforts. This type of constant efforts leads to cost consciousness and result in cost control.
7. Policies and General Objectives: All the employees of the organization are communicated the policies and general objectives. If so, cost control is very easy.
Cost control is exercised through various techniques like standard costing, budgetary control, inventory control, quality control, performance analysis and reporting.
Steps involved in Cost Control
The following steps have been adopted to exercise cost control.
1. Planning: Planning may be done as in the form of budget, standard, estimate and the like. The past events have been considered for proper planning. The planning is expressed both in physical as well as monetary terms. The standards are used as yardsticks.
2. Communication: The planning and policy should be communicated to the employees. If so, they can assume the responsibility and do the work properly. Communication has two directions. They are upward direction and downward direction. Instructions flow from the top level to lower level. Likewise, report on performance move towards upwards.
3. Motivation: The performance is evaluated; costs are ascertained and reported to the management regarding the results of performance. Such report may be act as motivating force and leads to better performance in the days to come.
4. Appraisals and Reporting: The actual performance is compared with preplanned standard and find the deviations. The causes for such deviations are also analyzed. Finally, the deviations with reasons are reported to the top level of management for cost control.
5. Decision Making: The top management may review the report on many directions. Lastly, the management takes necessary corrective actions. Finally, the existing standard or budget may be revised according to the prevailing situations.
The responsible executives can exercise physical control for the successful implementation of cost control system. In the manufacturing place, the supervisor can exercise control over the amount of expenditure incurred as in the form of cash or in the utilization of labour, material and other resources. If minimum materials are used, cost of material may be controlled to some extend.
Labour is employed on time rate basis. If so, maximum work can be completed within short spam of time. Thus, cost of labour is exercised. A machine is also used to produce a product. Increasing productivity may use minimum machine hours. In this way, the supervisor can exercise control in physical terms i.e. labour hours, machine hours and quantities of material, wastage and spoilage.
Advantages of Cost Control
The chief advantages of cost control are briefly explained below:
1. Return on capital employed may be increased.
2. The volume of profit is also increased with minimum output and sales.
3. Management can increase the productivity with available resources.
4. The employees are getting job continuously.
5. The employees can get reasonable remuneration with bonus.
6. The available factors of production and resources are effectively used.
7. The credit worthiness of the company is increased.
8. There is a possibility of prosperity and economic stability of the industry.