Cost control, Why cost control is necessary for a business?
Summary
TLDRIn this educational video, the focus is on cost control, its definition, and its significance for businesses. Cost control involves managing and reducing business expenses to boost profits, starting with the budgeting process. It's crucial for increasing efficiency in material, machinery, and labor use, and for staying competitive by reducing costs and potentially lowering product prices. The video also touches on cost accounting and encourages viewers to explore more through provided resources.
Takeaways
- π Cost control is the process of identifying and reducing business expenses to increase profits.
- π It begins with budgeting, where actual financial results are compared with budgeted expectations.
- πΌ Management must take action if actual costs exceed planned costs, such as by seeking bids from different vendors.
- π Cost control is crucial for maintaining and growing profitability.
- π‘ The formula for target net income is: Sales - Fixed Costs - Variable Costs = Target Net Income.
- π Inventory, a variable cost, can be reduced by finding suppliers with competitive prices.
- π Outsourcing is a method to control costs, as it can be cheaper than performing tasks in-house.
- πΉ Cost control is essential for a business's profit-making capacity and efficiency.
- π οΈ It leads to increased efficiency in the use of materials, machinery, and labor.
- π’ Cost control provides a basis for cost reduction, which is necessary for competition and market share growth.
- π For more information on cost accounting, refer to the previous video and the provided PDF.
Q & A
What is cost control?
-Cost control is the practice of identifying and reducing business expenses to increase profits. It involves comparing actual financial results with budgeted expectations and taking action if actual costs exceed planned ones.
How does cost control start?
-Cost control begins with the budgeting process. A business owner compares the company's actual financial results with the budgeted expectations to ensure that costs are in line with the financial plan.
Why is it important to compare actual costs with budgeted expectations?
-Comparing actual costs with budgeted expectations helps identify discrepancies and inefficiencies. This allows management to take corrective action to reduce costs and improve profitability.
Can you give an example of how a company can reduce costs?
-A company can reduce costs by obtaining bids from different vendors that provide the same product or service, which can lead to more competitive pricing and lower overall costs.
What is the formula for calculating target net income?
-The formula for calculating target net income is: Sales minus Fixed Costs minus Variable Costs equals Target Net Income.
How does cost control help in achieving a target net income?
-Cost control helps in achieving a target net income by allowing management to review and reduce both fixed and variable costs, which in turn increases the net income.
What is one way to reduce variable costs like inventory?
-One way to reduce variable costs like inventory is by finding other suppliers that may offer more competitive prices, thus lowering the overall cost of inventory.
Why is outsourcing considered a method for cost control?
-Outsourcing is considered a method for cost control because it can be cheaper for a business to pay a third party to perform a task rather than taking on the work within the company, reducing internal costs.
Why is cost control necessary for a business?
-Cost control is necessary for a business because it guides the profit-making capacity, increases efficiency in the use of materials, machinery, and labor, and provides a basis for cost reduction, which is essential for competition and market share.
How does cost control help a business in competition?
-Cost control helps a business in competition by allowing it to reduce the selling price of a product, making it more attractive to consumers and potentially increasing market share.
What is the role of cost control in maintaining profitability?
-Cost control plays a critical role in maintaining profitability by ensuring that expenses are kept in check, which allows the business to maximize its net income and sustain growth.
Outlines
πΌ Introduction to Cost Control
The video begins by introducing the topic of cost control, explaining it as the process of identifying and reducing business expenses to enhance profitability. It emphasizes the importance of starting with budgeting, where a business owner compares actual financial results with budgeted expectations. If there is a discrepancy with actual costs exceeding the budget, management intervention is required. The video provides examples such as obtaining bids from different vendors to lower costs and mentions that controlling costs is crucial for planning target net income, which is calculated as sales minus fixed costs minus variable costs. It also touches on methods like reducing inventory costs by finding competitive suppliers and using outsourcing as a strategy to control costs.
Mindmap
Keywords
π‘Cost Control
π‘Budgeting Process
π‘Actual Financial Results
π‘Vendors
π‘Profitability
π‘Target Net Income
π‘Variable Costs
π‘Outsourcing
π‘Cost Reduction
π‘Competition
π‘Cost Accounting
Highlights
Cost control is the practice of identifying and reducing business expenses to increase profits.
It begins with the budgeting process where actual financial results are compared with budgeted expectations.
Management takes action if actual costs exceed planned budgets.
Obtaining bids from different vendors can be a strategy to lower costs.
Cost control is crucial for maintaining and growing profitability.
Target net income is calculated using the formula: Sales - Fixed Cost - Variable Cost.
Management reviews both fixed and variable costs to reduce expenses.
Inventory, a variable cost, can be reduced by finding suppliers with competitive prices.
Outsourcing is a method to control costs as it can be cheaper than internal work.
Profit-making capacity is influenced by the efficiency of cost control.
Cost control increases efficiency in the use of materials, machinery, and labor.
It provides a basis for cost reduction, which is necessary for competition and market share.
Cost reduction can help lower the selling price of a product to capture the market.
Previous video discussed cost accounting, which can be accessed for further information.
The PDF for the transcript can be found through the link in the description.
Support the channel by subscribing, liking the video, and engaging with the content.
Transcripts
hi welcome to education leaves
in this video the topics i am going to
discuss are
what is cost control how to cost control
and why cost control is necessary for a
business
[Music]
let's start the video what is cost
control
cost control is the practice of
identifying and reducing business
expenses to increase profits
and it starts with the budgeting process
a business owner compares the company's
actual financial results with the
budgeted expectations
and if actual costs are higher than
planned
management needs to take action as an
example
a company can obtain bids from different
vendors that provide the same product or
service
which can lower costs cost control is an
important factor in maintaining and
growing profitability
controlling costs is one way to plan for
a target net income
which is computed using the following
formula
sales minus fixed cost minus variable
cost
is equals to target net income to reach
the goal
management reviews both fixed and
variable costs
and attempts to reduce the expenses
inventory is a variable cost that can be
reduced by finding other suppliers that
may offer more competitive prices
outsourcing is a common method to
control costs
because many businesses find it cheaper
to pay a third party to perform a task
than to take on the work within the
company
[Music]
now move on to why cost control is
necessary for a business
1. profit-making capacity of a business
is guided by the efficiency with which
various costs are controlled
2. cost control is leads to increase the
efficiency in use of material
machinery and labor 3.
cost control provides a basis for cost
reduction
cost reduction is necessary in order to
stand in competition in a specific
production line
and reduce the selling price of a
product to grab the market
in my previous video i have discussed
cost accounting
check the video in the i button if you
need the pdf
go through the link in the description
you can support my work by subscribing
to my channel
like the video and thanks for watching
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