The cost of making a particular product or delivering a particular service is calculated by the finance and accounts department, with the help of a technique that is termed as Cost Accounting.
The principle of cost accounting is very simple. The total cost of manufacturing a set or lot of goods or services is added up together and divided by the number of units that have been produced, which gives the per unit production cost.
Cost accounting also reveals unneeded expenditures that are titled as 'overheads'. The accounts department also derives some financial statements that give us a specified amount of overheads that are incurred.
Methods of Cost Control
Any business or corporation has to encounter difficulties, which are practical, financial, as well as technical. The ones that survive these difficulties live to tell their stories of success. The following are some simple successful methods to control costs.
Review and Modify Business Model
There is a great, economically and commercially successful business model, that is used to lay down the foundations of any company.
By the term change, means that you should be upgrading and improving all possible business operations. You need to come up with new process and procedures to reduce costs.
Divide all these expenditures, even the ones such as cost of machinery or insurance, and sales, by the number of working days. This will give you a concrete figure of the total amount that has been spent.
Similarly, after sales of your goods or services, you may also divide the total amount of sales by the number of working days. This will give you a micro figure about the daily expenditure and sales. It will definitely help you to zero down on all possible cost problems that you incur.
You may also take a risk and make long-term agreements regarding the quality and quantity of materials that are being supplied to your manufacturing process. This uniformity will ensure a timely, cheap, and assured supply of raw materials.
Divide the amount of wages that you give out with the number of work hours per month. Explain to the employees per hour expenditures that you incur, and hence the necessity for time management.
You may also install good cost control systems to help your employees to manage their work hours well. A cost control software will also work wonders in the finance and accounts department.
In order to have a set of good cost control techniques at your disposal, you need to think creatively and effectively. You will also need to think about all the dimensions of expenditures such as time dimension, long and short-term expenditures, per capita wage expenditure, etc.
You can also consider all macro and micro costs. For example, the cost of running one team in comparison to the cost of all teams, or the cost of running one team compared to the revenue generated by the same team.