Cost control
Cost control: the ongoing process of keeping actual costs within planned levels by comparing them against budgets or standards and correcting deviations as they arise.
What it is
See it move
A bakery budgets flour cost at €400 for the month, 500 kilograms at €0.80. Actual usage is 520 kilograms bought at €0.85, an actual cost of €442, a total variance of €42 adverse. The higher price accounts for €26 of that adverse variance, and the extra quantity used accounts for the remaining €16, together reconciling back to the full €42 gap.
The formula
Variables
- Cost variance (€)
- Actual cost incurred (€)
- Standard (budgeted) cost allowed (€)
A positive result is an adverse (unfavourable) variance; a negative result is a favourable variance — the starting signal that triggers investigation under cost control.
Check yourself
A print shop budgets paper cost at €0.12 per sheet for a 4,000-sheet job run, a standard cost of €480. Actual usage for the run was 4,300 sheets bought at €0.11 per sheet, an actual cost of €473. What is the total cost variance for the job, and is it favourable or adverse?