Chapter 2 | The Control Process Flashcards
What is Cost Control?
The process of establishing and maintaining cost at an acceptable level given the operation’s objectives, resources, and external environment
Causes of excessive costs
Inefficiency
Waste
Theft
Goals of Cost Control
Financial Success
Sources of Control Problems
Organizational based problems
Personnel based problems
Control area based problems
Organizational based problems
Structural problems usually out of the hands of front-line managers.
Conflicting goals
Limited resources
Personnel based problems
Lack of direction by management
Motivational problems (conflicting organizational and personal goals)
Personnel’s limitations (physical skills and misunderstanding)
Control Area Based
Goals that are difficult to measure (employee morale)
Lack of standards and procedures
Four Steps of the Control Process
- Establish standards and procedures
- Train personnel
- Monitor and compare results with standards
- Take corrective actions
Benefits of standard procedures
Maintain consistent quality and quantity for customers
Establish standard costs and time required
Easy to identify the source of under performance
A base for training
Standard cost
cost of goods or services identified and approved by management
Budget
A numeric expression of the company’s goals and objectives in financial terms
Operating budget
A forecast of sales activity
The costs to be incurred in the next period
An estimated income statement
Standards for dollar sales revenue and expenses
Standard Procedure
The correct methods, routines and techniques for preparing products or performing jobs
How to monitor and compare results
Observing
Requiring records and reports
Even with a good recording system, the manager still needs to be physically present
Steps for Corrective Actions
Determine the cause of the problem Identify possible solutions Implement the most appropriate solutions Follow-up to insure the success of the solutions Review standards and procedures
