Cost Control – Meaning, Process and Techniques

 Q. What is meant by Cost Control ? Discuss its process and techniques.  

Ans. SBP

Meaning of Cost Control: Cost control is an essential component of any system of cost accounting. It seeks to ensure that costs are kept in line with the requirements of corporate planning so as to achieve its objectives and targets. Cost control is exercised through comparing actual costs with pre-determined standard costs so that the variance between the two can be measured and corrective actions may be taken according to reasons of such variances, if any. 

According to W.H. Harper, “Control is the guidance of the internal operations of all divisions of the business to produce the most satisfactory profits at the lowest cost.”

Process of Cost Control / Steps in Cost Control: The following steps are taken in the system of Cost Control :

(1) Establishing Norms or Standards: The first step in cost control is to set norms or standards. These attainable standards are set on the basis of past performance adjusted for changes expected or estimated in respect of future.

(2) Clearly defined Authority and Responsibility: The authority-responsibility relationship within the organisation must be clearly defined so as responsibility may be fixed in case of controlled variances.

(3) Accumulation of Actual Cost: There should be foolproof system for accumulating and ascertaining costs because it is the actual costs which are compared with pre-determined standard costs.

(4) Timely Comparison: No doubt, actual costs are compared with standards but this must be done timely and promptly so as necessary corrective actions may be taken immediately.

(5) Effective Reporting System: A system of effective reporting system should also be developed. In this context accounting reports should be presented in such a way that those concerned with cost in incurrence can understand them fully and react to them in an appropriate manner. Accounting control reports should include (a) Expected level of performance in terms of costs, (b) Actual level of performance in terms of costs, (c) Indication, whether performance is getting better or worse, (d) Basis for investigating deviations from standards so as causes can be established and future actions may be modified accordingly.

(6) Investigating of Variances: After the availability of cost report, variances are analysed and investigated. In this process, they are classified as controllable and uncontrollable variances as well as random and significant variances.

(7) Corrective Action: It is an important step in order to prevent the recurrence of unfavourable, controllable and significant variances. In this context, it should be remembered that “if small leaks are plugged in time, a lot can be saved and contributed towards profits.”

Techniques of Cost Control: Among various techniques of cost control, 2 most popular are Standard Costing and Budgetary Control. 

(1) Standard Costing: The technique of the standard costing involves:

(a) the assertainment of standard costs of various elements of cost, viz., material, labour and overhead.

(b) the comparison of actual costs with pre-determined standard cost. 

(c) the analysis of variances for ascertaining the reasons for the same.

(d) the location of responsibility for the variances and the corrective measures to be taken.

(2) Budgetary Control: It is the tool of management control and accounting which directs and co-ordinates the working operation on the basis of budgets. If there are variances in actual results, then either they are corrected or budget is modified so that the objective of maximum efficiency as per the policy of management may be achieved. 

VK 

Meaning of Cost Control: Cost Control means to keep the cost of production of a product, job, batch, process, cost centre, or a contract within the prescribed limits (i.e. the laid down standards). In Cost Control, all rules and regulation are applied by the executive action of the cost of operating a business enterprise so that the predetermined plans may be effectively applied to achieve the given targets of cost in each area. Cost control is achieved through the application of various techniques like Budgetary Control, Standard Costing and Responsibility Accounting. Under cost control technique standard for the products or service for each elements of cost (like material, labour and other expenses) and for each level of the worker are set. Also, there is regular and continuous comparison of actuals with standards are carried out and in case of deviation (Difference or Variations) the necessary corrective actions are taken at the earliest possible to control these variances, specially negative variances. This exercise will control the gap in actual and expected performance. 

These variances can be materi material variances, labour variances or overhead variances. These variances for cost control purpose are further divided into different categories. Like usage variance,  price variance, cost variance, mix variance or field variance. Different names are given to these variances as per element of cost, i.e., Material, labour and other expenses. Further these variances can be divided into favourable variance and adverse variances.  These variances can also be categorised as: (a) Controllable variances: Controlable are those which can be controlled or reduce by the necessary or immediate action by the management. For eg (i) abnormal wastage of material. (ii) abnormal idal time of the workers. (iii) non availability of material, men power or machine hour or electricity power at the required time. All these needs timely action control these leakage and hence uncontrollable variances are those which are beyond the control of management like, price rise oe due to unexpectable events like war, earthquake, floods, draught or fire etc. 

In nutshell we can say that cost control means when actual cost productions equal to predetermined standard cost and there is zero variance. Thus cost relates to:

1. Fixing standard cost for each element of cost.

2. Comparing the actual cost with standard cost.

3. Calculating variances whether favourable or adverse.

4. Taking necessary and corrective action adverse variances specifically.

5. Ascertain the cause of adverse variances and fixing responsibility damage control action.

6. To review the standards from time to time so that the standards may be revised as per changed circumstances and situation.

Cost Control Techniques or Methods may be summarized as below:

(A) Control on material cost like:

1. Various stock levels.

2. ABC analysis and VED analysis.

3. Perpetual inventory system.

4. Slow moving material.

5. Controlling waste and scrap.

(B) Labour control like:

1. Time keeping and time booking records comparison.

2. Abnormal idle time report.

3. Over time reports.

(C) Standard costing and predetermined costing.

(D) Budgetary control techniques.

(E) Accounting ratio to be used as meaning barometer for efficiency, productivity, profitability and return on investments.

Necessary Steps for Effective Cost Control:

(1) Division of work and division of authority and responsibility in the organisation.

(2) Efficient collection and Transmission of call cost reports with adverse variances so that ‘Management by Exception’ policy may be implemented effectively.

(3) Two way communication channel should be established without fear or favour correct reporting.

(4) Motivation and rewards to the work force for better and higher efficiency,  performance and productivity, team spirit and sense of belongingness at all levels of organization should be the core factor. 

(5) Sense of cooperation at various levels and among various departments for successful implementation of budgetary control system and standard costing technique must exist.

Industrial Marketing – Meaning and Difference Between Industrial Marketing and Consumer Marketing

 Q. What do you mean by Industrial Marketing? How it is different from consumer marketing? 

Ans. Meaning of Industrial Marketing: Industrial Marketing is also known as B2B Marketing, i.e., Business to Business Marketing. It is a process of exchange between the two business firms. Thus, when needs and wants of a firm are satisfied by some other firms through the exchange process, it is called industrial marketing. In the industrial market, markets are relatively concentrated and there are short channels of distribution, buyers are sophisticated in buying techniques, highly organized and fully informed. Therefore, industrial marketing creates its own set of conditions for the marketing decisions. It consists of all the activities involved in the marketing of products and services to the organizations that use these products and services for the production of other consumer or industrial products and services.

Industrial marketing is the human activity directed towards satisfying the needs, wants and demands of organizations through exchange process. It is basically marketing to customers who utilize the products and services they buy for manufacturing some other products and not for personal use. It consists of all the activities involved in the marketing of products and services to the organizations that use these products and services for the production of other consumer or industrial products and services. 

According to Philip Kotler, “Industrial Marketing is a human activity directed towards satisfying wants and needs of the organisations through the exchange process.”

Industrial Marketing involves exchange process between two business firms, thus, it is called B2B (business to business) marketing.

Difference between Industrial and Consumer Marketing: The differences between industrial marketing and consumer marketing are based on the characteristics of both. The considerable differences exist between industrial consumer marketing in the following areas:

1. Market

2. Marketing Mix 

3. Buyer’s Behaviour 

4. Exchange Transactions 

Basis		Industrial Marketing	Consumer Marketing
Market	Size	Global	Regional
	Number of Buyers	Fewer Buyers	Mass Market
	Competition	Oligopolistic Competition	Monopolistic Competition
	Buyer’s Location	Geographically Concentrated	Geographically Dispersed
Marketing Mix	Product Demand	Derived and Volatile	Direct and Less Volatile
	Product Nature	Tailor Made and Standardized	Standardized
	Requirement of Buyer	Service, Delivery, and Availability very important	Service, Delivery, and Availability less important
	Price	Non-Standardized	Standardized
	Negotiation	More with Price Lists	Less with Price Lists
	Promotion	Personal Selling	Advertising, Sales promotion, Publicity
	Place	Channel Length: Short Linkages: Fewer	Channel Length: Long Linkages: Multiple
Buyer’s Behavior	Quantity	Large	Small
	Brand	Loyal to brand	Brand Switching
	Nature	Rational Buying	Rational and Impulsive both
	Relationship	Strong Interpersonal Relationship	Weak Interpersonal Relationship
Exchange Transactions	Product Exchange	Need Satisfaction and Fulfillment of Product Specifications	Product Specifications not of a high order
	Information Exchange	Strong and Deep Interaction between buyer and seller	Limited Interaction between buyer and seller
	Financial Exchange	More Importance to purchase price and, commercial terms	Limited importance to terms and conditions relating to price
	Social Exchange	Cordial relations necessary	Cordial relations not necessary

industrial marketing meaning difference consumer marketing. 

Value Analysis – Meaning, Difference Between Value Analysis and Value Engineering, and Techniques

 Q. What is Value Analysis ? How is it different from Value Engineering ? Explain any two techniques of value analysis.

OR

What is Value Analysis ? Discuss various techniques of value analysis.

OR

What is the meaning of value analysis ? What are the techniques of value analysis ?

Ans. Meaning of Value Analysis: Value analysis or value engineering is such a technique which reduces the cost of products or services through following a scientific approach and analysis. The various unnecessary costs associated with the products or services are identified and eliminated without affecting the quality. The unnecessary costs are those which neither provide any additional satisfaction to customers nor their removal will affect the quality of the product or services. If these costs are identified and eliminated, it will reduce the cost of the products or services and ultimately the volume of turnover will increase. This technique saves the scarce resources and promotes indigenous development of substitutes.

Value analysis and value engineering are different in a sense that the term value analysis is used for existing products or services, whereas value engineering refers to new products or processes which are not finalised. Although these words are generally used interchangeably. 

Techniques of Value Analysis: The two techniques which are used in value analysis are as follows:

1. Functional Analysis System Technique (FAST): It is an evolution of the value analysis process which is created by Charles Bytheway. The set of original questions for FAST given by him includes the following:

(i) What subject or problem would you like to address?

(ii) What are you really trying to do when you want to do something?

(iii) What higher level function has caused to come into being?

(iv) Why is it necessary?

(v) How is it actually accomplished or how it is proposed to be accomplished?

(vi) Does the method selected to cause any supporting functions to come into being?

(vii) If you did not have to perform, would you still have to perform the other supporting function?

(viii) Do apparent dependent functions come into existence as a result of the current design?

FAST permits people with different technical backgrounds to effectively communicate and resolve issues that require multi-disciplined considerations. FAST builds upon VA by linking the simply expressed verb-noun functions to describe complex systems.

The FAST model has a horizontal directional orientation described as HOW-WHY dimensions. HOW and WHY questions are asked to structure the logic of the system’s functions. The two steps are followed: 

(i) Start with a function and ask HOW that function is performed to develop a more specific approach.

(ii) Abstract the problem to a higher level and ask WHY that function is performed. 

Addressing any function on FAST model can be as follows:

(i) The questions WHY is answered by the function on the left which expresses the goal of that function.

(ii) The questions HOW is answered by the function on the right, which is a method to perform that function.

2. Brain Storming: Brains Storming was originated from advertising industry to stimulate the creative thinking. It is a group activity in which the members of the group throw out ideas after applying their imagination to a single problem. The group is consisted of four to ten members. The ideas are welcomed no matter how ridiculous it may seen. It attempts to promote creative thinking. Chairman notes down every idea but they are not evaluated at the time of presentation. The logic behind this that one idea even though ridiculous will stimulate the other idea and so on. This process will ultimately lead to a genuinely original and workable solution to the problem. When the brain-stomming session is over, the resulting ideas are evaluated in terms of contribution on reducing cost.

3. Comparative Analysis: Sometimes comparative analysis off similar items provide more savings than by applying tests of value individually to each item. A comparison might provide some clues. For example, an analyst of cooler industry might review all the available alternatives regarding front grill. If he replaces the iron sheet grill with fiber or plastic grills, it will reduce the weight and will also decrease the cost. Simultaneously the cooler will be noiseless and will be more handy to clean. Some analysis plot it on a graph taking to different variables on X-axis and Y-axis. A curve like graph appears after plotting the values on the graph. The value that do not follow the curve are not necessarily poor values, since there may be some additional features that justify the premium charged in cost. But they should be properly investigated. 

4. Design Analysis: First of all the components and functions of the products are to be visualised thoroughly. When a product is designed and developed, initially engineers developed the components or parts individually. Then the value analysis team analyses each sub-assembly in relation to each other and to the total product. After analysing, they made suggestions regarding new material and method to be used or to add or eliminate an assembly for adding more value to the product.

5. Buyer-Supplier Seminars: The number of suppliers for each smallest part may be numerous and each supplier may have different knowledge about the functioning performance and usefulness of the part. This technique of Buyer-Supplier Seminars is to create a pool of knowledge and know-how. In the seminars, the suppliers introduce new components, new knowledge, etc. On the other hand, the company’s executives introduce their new initiatives, objectives and discuss future plans. They may also invite suppliers for their valuable suggestions for improvement in the product.

6. Gordon Technique: This technique is closely related to brainstorming technique. But the major difference between the two is the approach. In this technique, the group leader opens the session with a statement of the board to be discussed, while in brainstorming session technique, the problem is pinointed.

7. Checklist Technique: The value analysis procedure starts with the detailed checklist to ensure that every pertinent questions is asked about each component. But in this technique, the checklists are prepared specifically for solving a particular problem. The following type of suggestions are included in the checklist:

(i) What does it cost?

(ii) What does it do?

(iii) Can it be eliminated?

(iv) Can a standard item be used?

(v) Can the item be redesigned?

8. Synectics Techniques: This is the preset method was first introduced in 1960 by J.J. Fordon. Synectics was derived from the Greek word ‘synektiken’ which means joining of different items together and reflect the early discovery of the synergistic effects of ‘banging things together’ where the creative equation of A + B = C illustrates how new ideas can be created from two old ideas. Thus synectics is a structured and efficient method of creative problem solving. In Synectics, the problem is stated very broadly such that problem solvers have not even inkling of the problem. When the discussion proceeds and perspectives are formed, then the facts of the problem are revealed which makes the solution more refined and specific to the actual problem. Team leader plays a crucial role during the session. The analogous and metaphorical information is exchanged within group of individuals having different specialisations and personalities.

9. Morphological Analysis: This method was deloped by Fritz Zwicky in 1966. Morphological analysis is actually a group of methods that share the same structure. This structure breaks down a system, product or process into its essential sub-concepts. Each concept represents a dimension in a multi-dimensional matrix. Thus every product is considered as a bundle of attributes. New ideas are found by searching the matrix for new combination of attributes that do not yet exist. It doesn’t provide any specific guidelines for combining the parameters. It tends to provide a large number of ideas. It helps in discovering new relationships and configurations which are overlooked by others.

10. Attribute Listing Technique: Attribute listing is a technique from the early 1930’s which takes an existing product or system, breaks into parts and identifies various ways of achieving each part. It prompts the different ways to change, modify or improve each attribute and recombine them to identify new forms of the product or system. Attribute listing is a very useful technique for quality improvement of complicated products, procedures for services. Let us take an example of business of making torches. The torch has different components - casing, switch, bulb, battery and the attribute weight. A list of ideas can be developed to improve each one. 

Attribute Listing  – Improving a torch

Feature	Attribute	Ideas for Improvement
Casing	Plastic	Metal
Switch	On/off	On/off/flow beam
Battery	Power	Rechargeable
Bulb	Simple Bulb	LED
Weight	Heavy	Light

Income Tax Authorities in India – Powers of the Director-General of Income Tax

 Q. What are the various authorities envisaged in the Indian Income Tax Law ? Discuss the power of the Director-General of Income Tax. 

Ans. There shall be the following classes of income tax authorities for the purposes of the Income Tax Act: (Sec. 116)

(1) The Central Board of Direct Taxes (CBDT)

(1A) Principal Directors General of Income Tax or Principal Chief Commissioners of Income Tax. 

(2) Directors-General of Income Tax or Chief Commissioners of Income Tax.

(2A) Principal Directors of Income Tax or Principal Commissioners of Income Tax.

(3) Directors of Income Tax or Commissioners of Income Tax or Commissioners of Income Tax (Appeals)

(4) Additional Directors of Income Tax or Additional Commissioners of Income Tax or Additional Commissioners of Income Tax (Appeals)

(5) Joint Director of Income Tax or Joint Commissioner of Income Tax.

(6) Deputy Directors of Income Tax or Deputy Commissioners of Income Tax. 

(7) Assistant Directors of Income Tax or Assistant Commissioners of Income Tax.

(8) Income Tax Officers.

(9) Tax Recovery Officers.

(10) Inspectors of Income Tax.

POWERS OF THE DIRECTOR-GENERAL, CHIEF COMMISSIONER AND COMMISSIONER

(1) If authorised by the Central Government they (he) may appoint income tax authorities below the rank of an Assistant Commissioner or Deputy Commissioner. [Sec. 117(2)]

(2) If authorised by the Board, they may appoint any executive or ministerial staff as may be necessary to assist them in the execution of their functions. [Sec. 117(3)]

(3) The Director-General or the Chief Commissioner or the Commissioner may transfer any case from one or more Assessing Officers subordinate to him to any other Assessing Officer or Assessing Officers subordinate to him. [Sec. 127]

(4) The Director-General or the Chief Commissioner or any such Joint Director or Joint Commissioner as may be empowered by the Board or any such Dy. Director or Dy. Commissioner or Asstt. Director or Income Tax Officer as may be authorised by the Director General or Chief Commissioner, may take all steps regarding search and seizure u/s 132. [Sec. 132]

(5) The Director-General or the Chief Commissioner or Commissioner or Joint Commissioner shall be competeent to make any enquiry under this act. For this purpose, he will have all the powers that an assessing officer has under this act in relation to the making of enquiries. [Sec. 135]

(6) On an application being made to the Chief Commissioner or Commissioner to supply such information relating to any assessee as is received or obtained by any income tax authority in the performance of his functions under this act, he may, if he is satisfied that it is in public interest to do so, order the furnishing of such information to the applicant. [Sec. 138]

(7) The Chief Commissioner or Commissioner is authorised to sanction issue of a notice for re-assessment u/s 148 after the expiry of four years from the end of the relevant assessment year. [Sec. 151(1)]

(8) Where a refund is found to be due to any person, the Chief Commissioner or Commissioner may order the set-off of the sum to be refunded against the sum, if any, remaining payable to him under this act. [Sec. 245] 

(9) If the Commissioner considers that any order passed under this Act by the Assessing Officer is erroneous and prejudicial to the interest of the revenue,  he may pass such order thereon as is justified including an order enhancing or modifying the assessment or cancelling the assessment and directing a fresh assessment. [Sec. 263]

(10) In the case of any order other than the one revised under Sec. 263, the Commissioner may either of his own motion or on an application , by the assessee for revision,  call for the record of any proceeding under this Act in which any such order has been passed and after making necessary enquiry, may pass revised order, which should not be prejudicial to the assessee. [Sec. 264]

(11) The Commissioner may reduce or waive the penalty imposed on a person u/s 272(1)(iii) (Concealment of income). [Sec. 273A]

(12) The Chief Commissioner or Director-General has the power to approve the order of reduction or waiver of penalty imposed u/s 271(1)(c), issued by the Commissioner, if the amount of income concealed or amount of inacurate income furnished exceeds ₹ 5,00,000. [Sec. 273A(2b)]

(13) Where the Assessing Officer is of the opinion that for the purpose of protecting the interests of revenue it is a necessary to attach any property of the assessee, he has to obtain prior approval of the Director General or Chief Commissioner or Commissioner for issuing such order. (Sec. 281B)

(14) The Chief Commissioner or Director General can reduce or waive interest payment under Sections 234A, 234B and 234C in the prescribed circumstances.

(15) The Director-General or the Chief Commissioner or Commissioner may order requisition of books of accounts or any property which is in the possession or custody of any officer or authority under any law.  (Sec. 132A)

(16) In the case of interest payable by the Government on delayed refunds, where any question arises as to the period to be excluded for calculation of interest, such question shall be decided by the Chief Commissioner or Commissioner, whose decision shall be final. [Sec. 244A(2)]