Cost Control Procedures

Abstract

In Chapter 13 we identified direct costs as one of the key elements of the total cost of a product or service. In this chapter we are going to examine how cost control can be exercised over direct materials and direct labour. Even in a very small business the minimum information required is the total cost of direct materials and the total cost of direct labour. In most businesses management needs a more detailed breakdown of these total costs by activity for each product or service so that they can plan and control costs, and make decisions. For example, they need to know the labour costs in the canteen, the materials cost of making one product and the labour cost in the maintenance department. Once systems have been established to collected this detailed information, the total direct materials and total direct labour cost of a particular product or service can be calculated. For example, a car manufacturer can establish the total direct materials and labour costs of producing one particular model; a civil engineering company the labour costs of constructing a particular building; a plumber the total direct materials and labour costs of a particular job.