Cost Control

The basic objective of accounting is to provide information which is useful for persons inside the organization (i.e. owners, management and employees) and for persons or groups outside the organization (i.e. investors, creditors, government, consumers etc.).  According to Slavin and Reynolds Professors of Accounting, “Conceptually, accounting is the discipline that provides information on which external and internal users of the information may base decisions that result in the allocation of economic resources in society”.  The needs of the majority of the users of accounting information can be satisfied by financial; accounting.  Financial statements are concerned with the past whereas the management’s main interest lies not in past but in future.  It is mainly concerned with planning and controlling, preparation of various budgets, such as sales budget, production budget, cash budget, capital expenditure budget, etc. is an important part of planning and preparing various budget is an important aspect of Cost Accountancy.  Controlling is the function of seeing that programmes laid down in various budgets are being actually achieved i.e. actual performance is compared with the budgeted performance, enabling the managements to exercise control in case of week performance. 

Now-a-days managements are facing problems of survival because of acute competition.  Only those organizations can meet the competition effectively and have a hold on the market which is in a position to keep their cost minimum.  Cost accounting can be instrumental in this regard by eliminating all inefficiencies and wastages by exercising cost control.  The Chartered Institute of Management Accountants, London defines cost control as: “The regulation by executive action of the cost of operating an undertaking particularly where such action is guided by cost accounting:.  The terms ‘regulation’ and ‘executive action’ indicates conscious attempt of regulating the cost on the basis of predetermined ideas about what cost should be.  It is only when costs are predetermined i.e. a system of standard costing is in operation, that cost control measures can give their best.  Thus, cost control aims at reducing inefficiencies and wastages and setting up predetermined costs and in achieving them.  Cost control is executed through setting standards or norms or targets and comparing actual performance therewith with a view to ascertaining derivatives from set targets or norms or standards and taking corrective action to ensure that future performances conforms to the set standards or norms or targets.  For an effective system of cost control, the firm should have a definite plan of organization.  Authority and responsibility of each executive should be clearly defined.  Targets for performance of work as well as the cost to be incurred for the purpose should be laid down for each area of responsibility so that responsibility may be fixed for the deviation of actual cost from the predetermined cost.