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ACCA Applied Knowledge · Management Accounting · Cost reductions and value enhancement

Which statement best describes the difference between cost control and cost reduction?

Cost control keeps actual costs within a budget or standard, while cost reduction aims to achieve a permanent fall in unit costs without reducing the product's quality or suitability for its purpose. The two are different in aim, not in the type of cost or timing.

  1. ACost control aims to keep actual costs within set standards or budgets, whereas cost reduction aims to lower unit costs permanently without reducing the suitability of the product for its purposeCorrect
  2. BCost control aims to lower unit costs permanently, whereas cost reduction aims to keep costs within budget
  3. CCost control applies only to fixed costs, whereas cost reduction applies only to variable costs
  4. DCost control is carried out only at the planning stage, whereas cost reduction is carried out only after the period ends

Explanation

Cost control compares actual results with a predetermined target and takes action to keep costs within it. Cost reduction seeks permanent savings in unit cost without harming the product's fitness for purpose. The second option reverses the definitions.

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