Cost Control System

Front 1

What is cost control system?

Back 1

is a logical structure that contains all formal + informal activities which will influent cost. Also, it allows management to analyze / evaluate how well the expenditure is managed

Hint 1

- includes what?
- how to help manager?

Front 2

What is cost consciousnes?

Back 2

is the organizationwide employee attitude toward cost understanding, cost containment, cost avoidance, and cost reduction

Hint 2

to educate employee about cost

Front 3

Why we need cost control?

Back 3

- provide manager information to plan,
- provide manager information to determine if operation is efficient

Hint 3

How does it help manager?

Front 4

An effective cost control system includes 2 things

Back 4

-Cost control system
-Cost consciousness

Front 5

What is the layout of an effective cost control system?

Back 5

(i)Begin -> preventive [plan]
(ii)During -> Corrective [carry out as expected and allows correction
(iii)After -> diagnostic [provide guidelines for future]

Front 6

What are the controlling methods for the beginning?

Back 6

budgets, standard, qualitative & quantitative objectives, policy

Front 7

What are the controlling methods during the process?

Back 7

- periodic monitoring system
- Comparison btw actual and the target cost
- avoid excessive expenditure

Front 8

What are the cost controlling methods at the after?

Back 8

feedback, variance analysis, responsibility reports

Front 9

What are the 4 topics of costing that we have to make sure employees understand?

Back 9

- cost understanding
- cost containment
- cost avoidance
- cost reduction

Front 10

What is cost understanding?

Back 10

employees have to understand how the cost difference btw target values and the actual values arisen
=> ways to affect cost

Front 11

There are 6 topics which will affect cost difference of targeted and actual

Back 11

- by purchase quantity
- by cost behaviour
- by inflation/deflation
- by supplier cost
- by quantity of suppliers
- by advanced technology

Front 12

What is cost behaviour?

Back 12

cost is responsed to the level of activities changed.

Front 13

How cost diff. related to cost behaviour?

Back 13

unit var. cost and mixed cost are changed when level of activities changed.
-var. cost is changed in direct proportionally to level of activities.
-mixed cost is changed in total as level of activities changed.

Front 14

How does purchased quantity affect cost?

Back 14

inc. purchased quantity, reduced cost or use purchase in a group

Front 15

how does inflation/deflation change the cost?

Back 15

inflation = increase in total general price level of everything
=> the cost of goods/services will be affected in the same direction

Front 16

How does supply affect cost?

Back 16

high demand, low supply -> price increase
BUT, low demand, high supply[or remained unchange], price reduced

Front 17

How does advanced technology affect cost?

Back 17

advanced technology reduced cost of production; reduced price to customer.

Front 18

How does # of suppliers affect cost?

Back 18

Large # of suppliers, price is low
Small # of suppliers, price is high => since price can be controlled

Front 19

Other ways that suppliers may used to affect price?

Back 19

price fixing => fix price at certain level
-vertical price fixing => suppliers does not allow wholesaler, retailer to sell above / below the fixed price
=> anticompetition
-hortizontal price fixing: all competitors agree to sell goods at a fixed cost.

Front 20

What are the ways to minimize the cost?

Back 20

-cost containment
-cost avoidance
-cost reduction

Front 21

What is cost containment?

Back 21

a process to minimize variable cost per unit / total fixed cost which increase from period to period

Front 22

What are the possible cost increased that can or cannot be handled by containment?

Back 22

CAN
-reduced competition
-seasonality
-purchase quantity
CANNOT
-tax
-regulatory changes
-supply & demand adj.
-inflation

Front 23

how containment helps?

Back 23

-find alternative supplier who provide goods at relative low price
-but new suppliers should be investigate the quality, quantity, and time demand
- long-term and single source contract can reduce cost
- seasonal factor can be reduced by purchase in advance, delay purchase, JIT, safty stock level, economic order quantity, material requirement planning

Front 24

what is cost avoidance?

Back 24

avoid high cost by finding alternatives
& not spending money on unnessary things

Front 25

what is cost reduction?

Back 25

lower current cost especially, the in excess of nessary cost

Front 26

Ways for cost reduction

Back 26

- removed NVA activities
- temps only used when there is a time limit for skills in demand
- temps only used when it is at the seasonal peak
- or temps only used when spealty is in needed
- cost can also be reduced by outsourcing specify functions but not the core competencies or competitive advantages

Front 27

5 steps to implement cost control

Back 27

1. recognized cost type, cost driver [fixed, var, prod, per]
2. cost consciousness must be communicated to all employees
3. educate employees by teaching them the cost techniques and motivate them to share ideas about cost control
4. compare actual and expected cost => generate reports, and variance for future improvement
5. view cost control as long term process