Chapter II Basic Theory of Cost Control

2. 1 Significance and role of cost control

Cost control refers to the management behavior that the cost control subject of an enterprise takes a series of preventive and adjustment measures according to the cost management objectives established in advance for a period of time to control various factors and conditions that affect the cost before and during the production process, so as to ensure that all cost indicators reach the target values, thus achieving the cost management objectives [1 1].

(1) Cost control can improve the economic benefits of enterprises and enhance their competitiveness. The occupation and consumption of human, financial and material resources of an enterprise can be reflected by the cost of the enterprise. If the enterprise controls the cost, it can more clearly grasp the occupation and consumption of manpower, material resources and financial resources, so as to control the product cost formation process through cost control.

(2) Cost control is an important part of cost management. Cost management includes seven links, namely, cost prediction, cost decision-making, cost planning, cost accounting, cost control, cost analysis and cost inspection. These seven links are closely related and promote each other, and cost control is the most important of these seven links. Cost forecasting, decision-making and planning all need to play a role through cost control, so it is the most important of these seven steps.

(3) Cost control can improve the production and management of enterprises. To produce a product, an enterprise needs sufficient investment and correct production and management decisions, good product design and excellent technical level, strict production planning and organization, and reasonable personnel arrangement and material management. All the above can be reflected by the product cost. Through the supervision and control of cost, we can find the waste in production and operation and the problems in management in time, so as to make remedial measures quickly. Therefore, cost control should become the top priority of enterprise management. Doing a good job of cost control can minimize waste and reduce costs for enterprises, and at the same time improve the management level of all aspects of enterprises.

2.2 Cost control methods

(1) comprehensive budget management

"Comprehensive budget management is a management behavior and institutional arrangement to predict and control the future situation of investment activities, business activities and financial activities related to the survival of enterprises." Comprehensive budget management is based on the development strategic objectives formulated by the enterprise, closely linking the business activities of the enterprise with the strategic objectives of the enterprise, and finally expressing the business decision-making objectives of the company in monetary form [12].

The overall budget management system can be vertically divided into five links: constructing budget organization, determining budget objectives, preparing budget, executing budget and evaluating budget.

① Establishing a budget organization is the foundation of the whole budget system and the premise of the whole budget work. Budget management needs an independent, strategic and authoritative specialized management organization to be fully responsible for the coordination, supervision, control and evaluation of enterprise budget work.

(2) Determining the budget target is the starting point of the whole budget management and the key to the function of the budget mechanism. Managers should conform to the actual situation when formulating the budget, so as to ensure the operability and guidance of the budget. Good objectives are conducive to the smooth progress of budget management, the ultimate realization of strategic objectives of enterprises and the coordinated development of daily work; On the contrary, bad goals will make the daily work can not be carried out in an orderly manner, and the benefit and efficiency of budget management will be greatly reduced, which will hinder the sustainable development of enterprises. It is generally believed that budget indicators are profit indicators, but they are not. Generally speaking, budget objectives can be divided into two types:

Benefit index and scale index.

(3) Budget preparation is the core of the whole budget management system, including three parts: financial budget: it is the focus of the company's comprehensive budget. In a budget period, the company's expected cash receipts and payments, operating results and financial status are reflected in the financial budget. It is the total amount of the company's comprehensive budget, which can reflect the company's various business operations and investment plans. In the whole process of budget preparation, various comprehensive budget items are scientifically and meticulously decomposed and implemented, involving procurement cost, production cost, sales cost, inventory cost, capital cost, profit and many other aspects, including the preparation of estimated asset table budget, cash budget, cash flow budget and income statement budget, which provides an important guarantee for the ultimate realization of enterprise business objectives.

Investment budget preparation: the budget of the company's capital investment activities in a budget period mainly includes the preparation of fixed assets investment budget, equity capital investment budget and bond investment budget [13]. The investment budget specifically records the amount, time point, payback period, income recognition and cash flow of the company's investment. At the same time, the fixed assets investment budget can also reflect the company's purchase, expansion, transformation and renewal of fixed assets and the feasibility study of capital operation.

Business budget preparation: through the preparation of sales budget, purchase budget, business budget, production budget and other budgets, it reflects the cash receipt and payment budget that the company may form in a budget period.

(4) Budget execution is the key to the whole budget system. No matter how good the budget is, if it can't be effectively implemented, it's also an armchair strategist. By defining the responsibility, we can control and supervise the voucher transfer and program approval in the process of budget implementation, and strong supervision is also an important guarantee to realize the effectiveness of the budget.

⑤ Budget assessment is the last link of the whole budget management system, and effective budget assessment can ensure that the budget management system can really play its benefits. Managers should regularly analyze and evaluate the budget implementation, combine budget management with incentive mechanism, reward the departments that have completed the indicators, and punish the departments that have not completed the indicators. In this way, in the next stage of implementation, the budget execution department should treat the gap between reality and budget realistically, carefully analyze the reasons, find out the solutions, and better accomplish the budget objectives.

(2) Activity-based costing

Activity-based costing is a cost control method further developed on the basis of budget management method. When measuring the cost of a job, we should not only consider the cost of the product itself, but also consider the overall budget of a job by analyzing the resources, manpower, material resources and financial resources consumed in each work link according to the process of manufacturing this product, so as to predict the cost more reasonably and implement effective control methods.

(1) The guiding ideology of activity-based costing is: "Cost objects consume activities and activities consume resources" [14]. In the calculation formula of activity-based costing, the direct cost and indirect cost (including the period cost) of products or services should be treated equally, that is, they should be treated as the activity cost of products or services, so that the calculated product or service cost is more accurate and true, because the calculation scope of the cost is broadened, and the cost consumed by the whole operation is taken into account.

The core and basic object of cost calculation is activity [15], so the cost of a product or service is the sum of all activities related to the product or service, and it is also the end point of the actual consumption of all resources of the enterprise.

② The main procedures of activity-based costing are as follows: collecting data and listing the statistical data of relevant elements; Statistical summary and collation; Classify and prepare ABC analysis table; Draw ABC analysis diagram; According to the classification situation, determine the classification management mode and organize its implementation.

2.3 Value chain theory

"Every enterprise is a collection of activities in the process of product design, production, sales, delivery and assistance. All these activities can be represented by the value chain. " Enterprises need to create value through a series of activities [16].

These activities that enterprises create value can be divided into two categories: basic activities and auxiliary activities. Among them, production, marketing and service are the basic activities; Procurement, technology development, human resource management and enterprise infrastructure are auxiliary activities. Value chain is a dynamic process of value creation composed of all these different but interrelated production and business activities.

The value chain exists not only in the production activities within the enterprise, but also in the relationship between the business units of the enterprise, and also among the upstream and downstream related enterprises. The value of a product depends not only on the production capacity of the enterprise itself, but also on the upstream raw material suppliers and downstream sellers in the value chain to a great extent.

Porter's "value chain" theory also reveals that the competition between products and even enterprises is not only the competition of enterprises' own strength, but the comprehensive competition of the whole value chain. In Porter's words: "The value in consumers' mind is composed of a series of specific activities and profits of enterprises in material and technology. When you compete with other enterprises, it is actually the competition of many internal activities, not the competition of one activity. "

2.4 Cost driver theory

The cost driver refers to the reason that leads to the cost. The cost of a given activity is determined by the combination of multiple cost drivers, which is also the premise of activity-based costing [17]. In order to improve the value activities of enterprises and strengthen the cost control of enterprises, it is necessary to make clear the cost status of each value activity, and find out the cost drivers of this value activity and the reasons for its formation and change. Cost drivers can be divided into two categories:

(1) Perform cost driver analysis. The implementation cost driver analysis includes the analysis of the activity driver and resource driver of each production and operation activity [18]. These two drivers show two different dimensions of production and business activities: activity drivers refer to the ways and reasons why activities contribute to the final product, that is, how the final product is completed, such as the number of purchase orders issued. Resource motivation refers to the ways and reasons why various operations consume resources, that is, how to complete various operations. For example, the resource motivation of purchasing operation is the number of employees engaged in this activity.

(2) Analysis of structural cost drivers: Most enterprises have determined a large part of the costs before carrying out production and business activities. Taking this paper as an example, the communication network of the telecom company was built before the telecom company started to operate. Without a complete global interworking network, it is impossible to complete communication. This is a structural cost driver. Porter believes that the ten structural cost drivers that affect enterprise value activities are economies of scale, learning, production capacity utilization mode, connection, mutual relationship, integration, timing, independent policy, geographical location and institutional factors [19]. The cost control of enterprises is deeply influenced by the structural cost drivers of enterprises. Once the structural cost driver is determined, it determines the long-term low cost of the enterprise.

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