mckinsay 7s frame work

7/29/2019 mckinsay 7s frame work

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COST CONTROL AND COST

REDUCTION

Module 8


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COST CONTROL

MEANING:-

It is an comparative analysis of an actual

cost with an standards to facilitate evaluation

and formulation of corrective measures.


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DEFINITION

It is defined as the comparative analysis of

actual cost with appropriate standards or

budgets to facilitate performance evaluation

and formulation of corrective measures.

It aims at accomplishing conformity between

actual results and the standards or budgets.


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FEATURES

Creation of responsibility.

Formulation of standards and budgets.

Timely cost control reports. Formulation of corrective measures.

A systematic budgetary goals

Follow-up.


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COST REDUCTION

MEANING:-

It is an attempt of reducing the cost or

bring down the cost. It implies real and

permanent reduction of cost of goods

manufactured or services.


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DEFINITION

It defined as an attempt to brings cost down.

Cost reduction implies real and permanent

reduction in the unit cost of goods

manufactured or services rendered without

impairing their suitability for the use intended.


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COST REDUCTION IS ACHIEVED

The 2 ways of cost reduction are:-

By reducing cost per unit. By increasing the productivity.


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Difference b/w cost control and cost reduction

COST CONTROL COST REDUCTION

It involves (a) setting targets and standards

(b) ascertaining actual performance (c)

comparing actual performance with targets

(d) investigating the variances (e) taking

corrective action.

Cost reduction is not concerned with setting

targets and standards and maintaining

performance according to standards. Cost

reduction is a final result in the cost control

process.

Cost control aims at achieving standards i.e.cost targets. It assumes existence of

standards

Cost reduction aims at improving thestandards

It follows a conservative procedure and lack

of dynamic approach

It is continuous, dynamic and innovative in

nature, looking always for measures and

alternative to reduce cost

It is a preventive function It is a corrective function

In cost control cost are optimized before

they are incurred

In cost reduction there is always assumed a

scope for reducing the incurred cost under

controlled conditions


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It is generally applicable to items which

have standards

This is applicable to every activity of the

business.

It contains guidelines and directive of

management as to how to do a thing

It adds thinking and analysis to action at all

levels of management


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Tools and techniques of cost reduction

Value analysis /value engg.

Work study.

Job evaluation and merit rating.

Production planning & control (PPC).

Organization and method study.

Operations and method study.

Rationalization.

Quality control.


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Contd

Economic order quantity (EOQ).

Use of better technology.

Mechanization and automation. Standardization.

Simplification.

Classification and codification. Variety reduction.


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Contd

Improvement in the design of a product.

Market research.

Inventory management and control (IMC).


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COST REDUCTION FIELDS/AREAS.

Product improvement:

Factors in product improvement

Quality of the product, waste and loss to be eliminated,

reduction of unnecessary material, labour,

machine operations Proper designing of the product


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Production methods & layout.

Materials control .

Labour control .

Production layout . System analysis .

Time and motion study .

Designing of tools . Modernization of plant and equipment .


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Production methods & layout.

Materials control .

Labour control .

Production layout . System analysis .

Time and motion study .

Designing of tools . Modernization of plant and equipment .


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Marketing areas.

Channel of distribution.

Sales promotion schemes.

Marketing research plan. Advertising methods.

After sales service cost.

Transport arrangement.


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Administrative areas.

Investment planning.

Cash discount policy.

Mechanized system of accounting. Labour relations.

Labour welfare measure.

Availability of servicing facilities.


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What is Cost Auditing?

As per the Chartered Institute of Management

Accounts (UK)

The verification of cost accounts and check on

the adherence to the cost accounting Plan

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Scope of cost audit

1. MATERIAL

Goods inward procedure

Store keeping arrangement

Accounting for scrap, wastage, material transfer

Material pricing methods used Adequacy of stock checking

2. WAGES

Documents used in preparation of payroll

Wage rate change authorization for wage payments & overtime payments.

Time recording

Internal check system

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Continued

3. OVERHEAD

Overhead budgets

Appointment & allocation of O/H

Methods of absorption

Policy regarding inclusion of O/H in WIP

4. GENERAL

Methods of establishing standards, revision of standards

Methods of calculating standard cost variances

Accounting codes and instructions

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Advantages

It will establish the accuracy of cost accounts & assists in prevention of

errors and frauds.

To improve cost account method & technique to facilitate prompt &

reliable information to management

It will help management in taking important decision

Reduction cost of production

Assists financial auditors

It provides information relating to weak, inefficient or mismanaged units

for proper corrective actions

Helps to identify the symptoms of sickness in a unit.

Reveals whether funds invested by shareholders are profitably used in the

business.

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