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Summary Unit 4 - Assignment 2
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Unit 4 Assignment 2What is control cost?
Cost control is the business practice which involves recognising and lowering
expenses in order to increase profitability and this stems from the budgeting
process. This also involves the company owner comparing the company’s
financial results alongside the budgeted expectations and if the actual costs
are higher than what we wanted in the first place, then management has the
data they need in order to proceed with their action.
Explain why an engineering organisation controls costs:
As an engineering company, it is critical that we implement cost control since it
assists us in generating and maintaining profit, which we would not be able to
achieve without it. When cost management is put into practise, it aids in the
evaluation and control of expenses within a company, such as in the case of
our hoover manufacture for the gas industry. When considering this product,
we must consider costs such as raw materials, personnel management, and the
operation of the manufacturing plant and the product, as well as packaging
and delivery to clients. As a result, we must evaluate how we will control the
expenses of manufacturing and shipping the vacuums in order to make a
profit, as the revenue we generate from selling the product must be able to
pay production costs while also allowing us to make money on the side.
Furthermore, cost control is critical because, in order to make a profit, we
must consider other companies in the same industry because, as a company,
we want to make a profit while competing with others. As a result, we must
strategize effectively and employ cost controls to attempt and make our own
product's pricing competitive by observing the costs of similar products offered
by other companies. This guarantees that we realise the need of striking a
balance between profit margins and competitive pricing. As a result, it is
critical that we get our costing right as a firm, which can be accomplished with
the help of cost control.
Finally, it is critical that we utilise cost control because if we do not thoroughly
evaluate our costs, we may overlook vital information. If we consider our
vacuum manufacturers, we must consider costs such as energy costs to run the
machine plants, commodities prices to maintain the machines running, and
incurred costs that arise when the machine is out of commission due to
, maintenance. As a result, having an accurate and effective cost control allows
the organisation to succeed since it can improve and adapt to new cost
controls more readily in the future.
How decision making can be influenced
To begin with, as a corporation, we must consider investing enough money in
designing and manufacturing the product before we can consider making a
profit from selling the vacuums, as this could be an indication of danger. When
selecting how and how much to invest, we must weigh how much profit we
can realistically expect from sales against whether it is worth it or not to invest
in vacuums since we do not want to fail as a company when introducing our
products or else, we would be unable to operate in the long run.
Secondly, we must consider withdrawal because if the vacuums we generate
do not allow us to make a profit, we must evaluate whether it is more cost-
effective to withdraw the valves in order to avoid extra production costs such
as manufacturing and raw material prices. Using this strategy, we can expand
on this and consider saving more money in the future to invest in a new
product that will help us make more money and even beat out competitors on
the market.
Finally, as a company, there may be a few instances where we enlist the help
of a third-party organisation to manufacture vacuums, as this may be less
expensive than manufacturing the vacuum itself. This is to ensure that, with
the help of cost control, the company can save money and spend it in
something more worthwhile in the future. And that this might aid the
organisation in budgeting and saving considerably more efficiently than other
competitors.
Cost Allocation
What is Cost Allocation?
The process of finding, collecting, and assigning expenses to cost objects is
known as cost allocation. A cost object is an activity for which you want to
track costs individually. Cost allocation is commonly used for financial reports,
spreading costs across inventory items, and calculating profitability at the
subsidiary level, which can then be used to calculate bonuses and transfer
prices between subsidiaries.
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