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Analysis and Control

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Cost Reduction is a process, which aims to lower the unit cost of a product manufactured or service rendered without affecting its quality. It ascertains substitute ways to reduce the production cost of a unit. Cost Reduction aims at cutting off the unnecessary expenses which occur during the production Process, storage, selling and distribution of the product. To identify cost reduction we should focus on the following major elements:.

Cost control and Cost reduction Definition of Cost Control Cost Control is a process in which we focus on controlling the total cost through competitive analysis. It involves: Determination of standards; Ascertaining actual results comparing the standards; An analysis of the variances; Establishing the action that may be taken.

What is Cost Accounting? | Definition, Top Examples, Purpose

Characteristics of a Good Cost Control System According to backer and Jacobson, effective cost control should have the following characteristics : a Delineation of centers responsibility, i. To identify cost reduction we should focus on the following major elements: Savings in per unit production cost. The quality of the product should not be affected.

The Role of a Cost Accountant

Savings should be non-volatile in nature. Source: freepik. Cost Control is a temporary process in nature. Unlike Cost Reduction which is a permanent process. The process of cost control will be completed when the specified target is achieved. Conversely, the process of cost reduction is a continuous process. It has no visible end. It targets for eliminating wasteful expenses. Cost Control does not guarantee quality maintenance of products.

Cost Control is a preventive function because it ascertains the cost before its occurrence. Cost Reduction is a corrective function.

Solved Example for You What is the area of cost reduction process? Ans: Areas of Cost Reduction are: Design of the product to be produced — Standardization and simplification of the product, this is the most important activity for controlling and reducing cost.


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Factory layout organization and production methods, and Marketing — points of selling and distribution, transport, channels of distribution, etc. Fixed costs are expenses that recur each month regardless of the level of production. Examples include rent, depreciation, interest on loans and lease expenses. Variable costs are expenses that fluctuate with changes in production level, such as supplies, labor, and maintenance expenses. These costs are related to production in that the more units of a product produced, the more expense there is associated with the materials and labor that went into making the product.

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Cost Accounting

Cost accounting determines both fixed and variable costs associated with a product line to determine the break even point, and then ultimately the profit. The break even point represents the point at which expenses are covered by sales. Profit is determined by using the break-even point as the starting point for calculating profit. All sales beyond the break even point are profit.

Determining the number of units that need to be sold to reach the break even point and then achieve profit is know as cost-volume-profit analysis.

The Role of a Cost Accountant While most cost accountants work in government organizations or large companies, some will work as consultants either through public accounting firms or their own independent practice. Private consultants will often be called upon to perform services for small or mid-sized businesses that cannot substantiate the full-time employment of a cost accountant. Those who are employed full-time will perform a wide variety of duties:. Cost accountants should be familiar with all of the methods of cost accounting, as well as the software programs that support cost accounting functions.

Cost Accountants should stay abreast of new developments in accounting technology and trends, to ensure efficiency and effectiveness. However, many companies and governmental agencies have a minimum education requirement before promoting a candidate into the position.

Variable Costing (the Variable Costing method in Managerial Accounting)

These undergraduate programs will likely include at least one course dedicated to cost accounting, and the different methodologies employed. Candidates wishing to heighten their marketability as a Cost Accountant should consider a post-graduate degree such as a Masters in Business Administration MBA. Certifications and Associations Certified Public Accountant Like many other accounting career paths, obtaining licensure as a certified public accountant CPA will appropriately position a candidate for cost accounting jobs.

To be eligible to take the Uniform CPA Exam, an applicant generally must have college credit hours in relevant coursework, including accounting, finance, business management, and ethical standards.