Difference between Cost Control and Cost Reduction

The upcoming difference will update you about the difference between cost control and cost reduction.

1. Aim:

Cost control aims at achieving the predetermined costs, whereas cost reduction aims at reduction of costs by finding new ways or methods to have continuous economy on costs.

2. Exercise:

Cost control is a routine exercise which is carried out for attainment of operational efficiency whereas cost reduction aims at permanent and real savings by a continuous search for improvement. Thus, cost control follows a conservative procedure and lacks a dynamic approach whereas cost reduction is dynamic and innovative in nature.

3. Concerned with:

The process of cost control is to lay down a target, ascertain actual performance, compare it with the target and take corrective action. On the other hand, cost reduction is not concerned with maintenance of performance according to the predetermined standards.

4. Approach:

Cost control seeks adherence to standards whereas cost reduction is a challenge to the standards themselves. Cost reduction assumes that there are chances of improvements in predetermined standards.

5. Function:

The aim of cost control is to see that actual costs do not exceed the predeter­mined costs; so it is a preventive function. On the other hand, cost reduction is a corrective function because it challenges the predetermined costs and seeks to improve the perfor­mance by reducing cost of increasing production. It is a continuous function of self-analysis for making more and more improvement in performance.

6. Applicability:

Cost control is generally applicable to items of costs which have standards where as cost reduction is applicable to every activity of the business.

7. Tools of Techniques:

Budgetary Control and Standard Costing are important tools of cost control whereas cost reduction makes use of techniques like value engineering/value analysis, work study, operation research, simplification and standardisation, ABC analysis, etc.

8. When Achieved:

Cost control is achieved once the costs do not exceed the standards whereas cost reduction is never ending. In fact cost reduction begins when cost control ends.

9. Operation/Research Oriented:

Cost control is operation oriented whereas cost reduction is research oriented, always trying to reduce costs through planned research.

, , ,

shopify traffic stats