Differences between Cost Control and Cost Reduction

Cost control is a process that focuses on reducing total costs through competitive analysis. It is a practice that aims to align the actual cost with the established norms.

Cost reduction is a process that aims to reduce the unit cost of a manufactured product or service without compromising its quality. It is possible to accomplish this by employing new and improved methods and techniques. It identifies alternative methods of lowering a unit’s production cost.

Differences between Cost Control and Cost Reduction –

The importance of cost control and cost reduction are massive in businesses, but they have a few differences. Following are the main differences between cost control and cost reduction:

Cost control

  • Cost control is a technique used to keep costs within predetermined limits. It is more concerned with reducing waste than with lowering costs.
  • Continuous cost control is routinely implemented. It is a practice that works to keep the actual cost in line with the established norms.
  • Standard costing and budgetary control are the two most important cost-control techniques. It is a continuous process because it aids in the analysis of the causes of variances that control material waste, embezzlement, and so on.
  • Cost control is the process of establishing a target, determining actual performance, comparing it to the target, and taking corrective action.

Cost Reduction

  • Cost reduction is a technique used to reduce unit costs without sacrificing product quality. It focuses on cost reduction through new manufacturing processes, improved plant layout, scientific material handling, and so on.
  • Cost reduction is used when a cost-cutting opportunity is identified that provides a competitive advantage for a longer period of time. It is a process that aims to reduce the unit cost of a manufactured product or service without sacrificing quality by employing new and improved methods and techniques.
  • Cost reduction aims to eliminate unnecessary expenses incurred during the product’s production, storage, sale, and distribution. Quality operation and research, product design improvement, job evaluation and merit rating, variety reduction, and other cost-cutting tools are available.
  • Cost reduction is unconcerned with maintaining performance in accordance with predetermined standards.

Many manufacturing companies use the two techniques of cost control and cost reduction to reduce production costs. Cost reduction has a broader scope than cost control because it is applicable to all industries, whereas cost control is only applicable to industries where pre-optimization of costs that have not yet been incurred is possible.