Discuss the various elements of the cost control process

Answer 1

Cost understanding is one element of a cost control system. An organization needs to understand that costs may change from one period to the next or understand why costs differ from budgeted amounts. Total variable costs will increase/decrease with different levels of activity. Costs can also change due to inflation/deflation creating general price-level changes. Costs also change because of supply/supplier cost adjustments. Lastly, costs may change because of quantity purchased by the organization.

Cost containment is another element of the cost control process. Cost containment is defined as the practice of minimizing, to the extent possible, period-to-period increases in per-unit variable and total fixed costs. Cost containment is possible for costs that rise due to competition, seasonal variations, and quantities purchased.

A third element of the cost control process is cost avoidance. Cost avoidance is defined as the practice of finding acceptable alternatives to high-cost products and/or not spending money for unnecessary goods/services.

A final element of the cost control process is cost reduction. Cost reduction means lowering current costs especially for goods/services that may not be needed currently.