It is a process that involves series of steps taken by the business to control the cost of the business by controlling operations and activities related to the cost. There are a number of steps involved in controlling the cost of the business that can be explained as under:-
Creating the Baseline
In this step a standard baseline is created in which the actual costs of the various business operations are compared. The baseline can be created on the biases of historical data of the best costs of the business operations or the theoretical data of the actual costs that are realistic to attain in the business operations.
In this step the difference between the actual costs and the base line costs is calculated. If the variance is unfavorable then practical steps are taken to detect and rectify this variance between the actual and the baseline costs.
In this step the reason behind the uncertain variance is detected and rectified
In this step a particular action is taken or an action plan is designed by the managers and decision makers so that practical implementations can be done in order to reduce or eliminate the unfavorable variance among the actual and base line costs.
Most of the shareholders are particularly interested in the cost control systems of the business and considered a business worth investing if they feel that there is a tight control over actual costs of operations within the business.
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