Cost Management & Cost Control Essay

In broad sense, both the terms have the same meaning. Yet cost management seems to con none broader perspective. apostrophize control to an un-initiated may mean cutting down the incurrence of cost or expenditure every time or in every situation. In reality it is not ever so so. In many specific situations, many times, one has to spend or incur cost in order to gain or illuminate to a greater extent money. It is in fact like an investment. terms management sounds better then.ProfitsMaking profits or running with surpluses is an essential objective of any government activity whether a business organization, non-government non-profit making trust or government.Profit = Revenue (or Price X Units Sold) Overall Costs (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 decreasing the costs. Overall Cost Reduction Better StrategyIf you do some fast(a) calculations, you may find that* Increasing the sales volumes by say, 5% will increase 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 clasp from 20% to 45%.Cost Build-upThere are two ways of looking at as to how products or services start costing.Conventional guidanceCost = Direct Labor Cost + Direct Material Cost + Overhead Cost Activity Based Costing (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 attached to the resources consumed by the activities = Overall Cost Cost Reduction MethodsConventional* Reduce direct labor expenses* Reduce direct material expenses* Reduce overhead expensesNon-conventional* Reduce or eliminate (non-value adding) activities * Reduce the expenditure of the resources by these activities and even by value adding activities. Cost Management/Control by Controlling Non-Value Adding Activities* Product or services go through processes.* Processes represent of activities.* Activities are value adding and non-value adding.* Therefore, reduce and finally, eliminate non-value adding activities.* One may think of spending 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 excesss1. Waste of overproduction2. Waste of waiting3. Waste of transportation4. Waste of processing itself5. Waste of stocks6. Waste of motion7. Waste of making defective products/services