Cost Management & Cost Control Essay

In broad sense, both the terms have the aforementi 1d(prenominal) cogitateing. Yet cost counselling seems to con none broader perspective. constitute control to an un-initiated whitethorn mean cutting down the incurrence of cost or expenditure either time or in every situation. In reality it is not always so. In many specific situations, many times, one has to drop or incur cost in order to gain or make more money. It is in fact like an investment. personify management sounds better then.ProfitsMaking profits or running with surpluses is an internal objective of any organization whether a business organization, non-government non-profit making self-confidence or government.Profit = R plainue (or Price X Units Sold) Overall be (or All Expenses)One can make more profit by* Increasing the price* Selling more units* Reducing costsIn globally competitive environment, increasing the price is not always feasible, Therefore, one has to resort to increasing the sales volumes or dec reasing the costs.Overall Cost Reduction Better StrategyIf you do some quick calculations, you may find that* Increasing the sales volumes by say, 5% will ontogeny the profit by only by that much percentage i.e. 5% increase in profit. * On the other hand reducing the overall cost by 5% may increase the profit in the range from 20% to 45%.Cost Build-upThere atomic number 18 devil ways of looking at as to how products or function soak up costing.Conventional WayCost = aspire Labor Cost + Direct Material Cost + Overhead Cost Activity Based be (ABC) Way* Various activities are performed.* Activities attract resources like man, machine, material, money, time and information.* These resources mean money or cost.* Number of activities multiplied by costs given up to the resources consumed by the activities = Overall Cost Cost Reduction MethodsConventional* slenderise direct labor expenses* Reduce direct material expenses* Reduce bash expensesNon-conventional* Reduce or eliminat e (non-value adding) activities* Reduce the consumption of the resources by these activities and even by value adding activities. Cost Management/Control by arbitrary Non-Value Adding Activities* Product or services go through processes.* Processes consist of activities.* Activities are value adding and non-value adding.* Therefore, reduce and finally, eliminate non-value adding activities.* One may think of expenditure money on value-adding activities if the returns because of putting that extra money (investment) exceed the invested amount. Cost Management/Control by Controlling Seven Notorious blusters1. Waste of overproduction2. Waste of waiting3. Waste of transportation4. Waste of treat itself5. Waste of stocks6. Waste of motion7. Waste of making defective products/services