In wide sense. both the footings have the same significance. Yet cost direction seems to imply broader position. Cost control to an un-initiated may intend cutting down the incurrence of cost or outgo every clip or in every state of affairs. In world it is non ever so. In many specific state of affairss. many times. one has to pass or incur cost in order to derive or do more money. It is in fact like an investing. Cost direction sounds better so.
Net incomes
Making net incomes or running with excesss is an indispensable aim of any organisation whether a concern organisation. non-government non-profit devising trust or authorities.
Net income = Revenue ( or Price X Units Sold ) – Overall Costss ( or All Expenses )
One can do more net income by:
* Increasing the monetary value
* Selling more units
* Reducing costs
In globally competitory environment. increasing the monetary value is non ever executable. Therefore. one has to fall back to increasing the gross revenues volumes or diminishing the costs.
Overall Cost Decrease: Better Strategy
If you do some speedy computations. you may happen that:
* Increasing the gross revenues volumes by say. 5 % will increase the net income by merely by that much per centum i. e. 5 % addition in net income. * On the other manus cut downing the overall cost by 5 % may increase the net income in the scope from 20 % to 45 % .
Cost Build-up
There are two ways of looking at as to how merchandises or services start bing.
Conventional Way
Cost = Direct Labor Cost + Direct Material Cost + Overhead Cost Activity Based Costing ( ABC ) Way
* Assorted activities are performed.
* Activities attract resources like adult male. machine. stuff. money. clip 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 Methods
Conventional
* Reduce direct labour disbursals
* Reduce direct stuff disbursals
* Reduce operating expense disbursals
Non-conventional
* Reduce or extinguish ( non-value adding ) activities
* Reduce the ingestion of the resources by these activities and even by value adding activities. Cost Management/Control by Controling Non-Value Adding Activities
* Product or services go through procedures.
* Processes consist of activities.
* Activities are: value adding and non-value adding.
* Therefore. cut down and eventually. extinguish non-value adding activities.
* One may believe of passing money on value-adding activities if the returns because of seting that excess money ( investing ) exceed the invested sum. Cost Management/Control by Controling Seven Notorious Wastes
1. Waste of overrun
2. Waste of waiting
3. Waste of transit
4. Waste of treating itself
5. Waste of stocks
6. Waste of gesture
7. Waste of doing faulty products/services
