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Cost Management-final                                                                                                       30




(c)Previous Fixed cost10,8,00027,000

(d)New P/V ratio (b/a100)24%12.5%

(e)Revised fixed cost (BESP/V)1,03,68026,250

(f)Reduction in fixed cost (c-e)4,320750

Cost Control and Cost Reduction

Cost control implies guidance a reputation of cost by executive action. For this purpose, the executives are provided with some yard stick such as standards or budgets with which the actual costs and performances are compared to ascertain the degree of achievement made. Therefore Cost Control involves a continuous comparisons of actual with the standards or budgets to regulate the former. Standards or budgets once set up are not attended during the period or until some mistakes are discovered in standards.

Cost reduction is the achievement of real and permanent reduction in unit cost of products manufactured. It, therefore, continuously attempts to achieve genuine savings in cost of production distributing, selling and administration. It does not accept a standard or budget as                    or fined. It rather challenges the standards/budgets continuously to make improvement in them. It attempts to excavate, the potential savings buried in the standards by continuous and planned efforts. Cost control relax that dynamic approach, it usually dealt with variances leaving the standards intact.

Application of cost control in material cost.

Materials Cost is the price paid and the cost incurred by an organization in procuring materials for production. If material cost is effectively controlled we must have a proper system of material control and the following are the fundamental requirement of such a control :-


Definite responsibility in respect of every function of material control should be specified and allocated.


Proper co-ordination between the various sections/departments responsible for different function should be achieved.


Purchasing function should be centralised as far as possible and entrusted to a competent person conversant with purchasing function.


Controlled procedure should  be standardised ad uniform forms and documents should be used all over the organisation.


To facilitate the control procedures materials requirements budget and materials purchased budget should be prepared.


Adequate provision for proper storage facilities and suitable arrangements for storing materials should be made.


A proper system of stock control should be introduced and maintained.

Difference between cost control and cost reduction :-

Cost Control is defined as the “the guidance and regulations by executives action of the cost of operating and undertaking while cost reduction is defined as and achievement of real and permanent  reduction in  the unit cost of goods manufactured or services rendered without impairing their suitability for the use intended.”

Thus the cost control  represents the efforts where cost reduction represents achievement. Cost reduction is a continuous attempt towards improvement.

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