Various cost control methods used by contractors Essay

Problem Statement

During the executing of a undertaking, processs for undertaking control and record maintaining become indispensable tools to directors and other participants in the building procedure. These tools serve the double intent of entering the fiscal minutess that occur every bit good as giving directors an indicant of the advancement and jobs associated with a undertaking. ( Chris Hendrikson, 2008 )

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This survey will present assorted cost control method used by Contractors during the building procedure and indentifies the job that arises in implementing and practising those methods.


To analyze the cost control method used Contractors in the building procedure.

To place the cost control method often used by contractors.

To place jobs faced by Contractors in implementing and practising the cost control method.

Scope of Study

This survey will be limited to the cost control method used by Contractors based within the geographical boundaries Kuala Lumpur and Selangor during the building period of the undertaking.

Research Methodology

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literature reappraisal


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Specifying Cost Control

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Cost Reporting Systems

Weekly Cost Report

One of the basic studies for the control of cost on site is the hebdomadal cost record ( Pilcher, 1992 ) . However, merely major operations affecting big measures and important cost would be prepared, because it involves a great trade of clip and cost. In normal events, look intoing cost in hebdomadal intervals would be turn out to be really hard to be carried out and besides excessively expensive of an operation, unless the costs and measures can be measured accurately. Normally, the cost of stuffs used in a hebdomad would non be recorded ( Pilcher, 1992 ) .

However, should this operation is required to be carried out, it should give a complete record of the measures of work which have been carried out in the hebdomad old to the day of the month of the study, together with the ball amount entire costs of the labor and works that have been incurred in regard of those operations ( Pilcher, 1992 ) . Sample of the study are shown in Table 2.3 – 1.

Table 2.3- Weekly Cost Report

Each of the measure, cost, and unit cost are prepared on the footing of the work carried out during the hebdomad. There are two entire country that need to be recorded, that is, the sum of work carried out on the hebdomad antecedently to the day of the month of study and the sum of work carried out reported by the old study. The handiness of these information should help in finding the cost difference in cost per unit between this and the old hebdomad.

In fixing the hebdomadal record, it should be as simple, brief and accurate as possible. The staff would merely disregard the record if there is excessively much irreverent information. The record should do a speedy and permanent feeling that would take consideration to the important characteristics of the status ( Pilcher, 1992 ) .

Monthly Cost Report

At monthly intervals, it is desirable to fix a cost statement in slightly more item than the hebdomadal control statements ( Pilcher, 1992 ) . It shall dwell of the existent cost incurred to day of the month, In add-on to information sing the cost to day of the month and the value of the work carried out, it is extremely desirable that an estimation be prepared of the cost of the work yet to be completed. Since it may good change from the original estimation, it should be prepared in the visible radiation of information that has been gained on the work so far.

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Standard Costss and Discrepancies

In order to do a meaningful reading of the information collected, it is necessary to hold some signifier of norm or criterion against which the existent public presentation can be measured ( Pilcher, 1985 ) . Estimating possible result from historic public presentation and experience normally sets criterions in building or in particular instances from the usage of work measuring technique ( Pilcher, 1992 ) .

Any going from the set of standard pattern is known as discrepancy. An unfavourable discrepancy is one which the planned or budgeted cost has been exceeded by the existent cost of work. Whereas, a favourable discrepancy indicates that less cost or resources has been incurred in order to finish the work than what was budgeted ( Pilcher, 1985 ) . Harmonizing to ( Pilcher, 1992 ) , discrepancy can happen because of two grounds:

The existent monetary value paid for the resources is greater or lesser than the sum estimated in the criterion.

The existent measure of resources used is greater or lesser than the sum estimated in the criterion.

The two factors deserve consideration if the work is to be carried out as its budgeted cost. Inefficiencies are of import in footings of cost, and attending can be paid on limited countries where these inefficiencies exists when utilizing the discrepancy analysis.

Actual Cost ( AC )


Actual Quantity ( AQ ) – Actual Price ( AP )

Standard Cost ( SC )


Standard Quantity ( SQ ) – Standard Price ( SP )

Entire Cost Discrepancy


Standard Cost ( SC ) – Actual Cost ( AC )


Actual Quantity ( AQ ) is the existent sum of resource used up to finish the work.

Actual Price ( AP ) is the existent monetary value paid for the acquisition of the resource used to finish the work.

Standard Quantity ( SQ ) is the estimated sum of resources that will be used to finish the work.

Standard Price ( SP ) is the estimated monetary value to get the resource to finish the work.

A discrepancy between Actual Quantity and Standard Quantity indicates that the production is more/ less efficient than what was estimated.

A discrepancy between Actual Price and Standard Price indicates that the monetary value to get the resources to finish the work was higher/ lower than the estimated monetary value.

Material Discrepancies

Normally, there is a discrepancy between the monetary value and use of the stuff used to finish the work. The material monetary value discrepancy will amount to the difference between the criterion and existent monetary values for the measure of stuff used whereas the material use discrepancy will be the difference between the criterion and existent measures of stuffs used ( Pilcher, 1985 ) .

Material Price Discrepancy


AQ ( SP – AP )

Material Use Discrepancy


SP ( SQ – AQ )

Material Cost Discrepancy


SC – Actinium


( SQ – SP ) – ( AQ – AP )

The cost discrepancy for stuff can besides be calculated as the amount of discrepancy between the stuff use and discrepancy between stuff monetary values.

Material Cost Discrepancy


Material Price Variance + Material Usage Variance

In both instances, the consequence obtained will be the same.

Labour Discrepancy

There are two of import discrepancies to be considered at the first phase of the analysis of labour public presentation and cost. These are ‘labour rate ‘ and ‘labour efficiency ‘ discrepancies ( Pilcher, 1985 ) . The labour rate discrepancy occurs from the difference between the standard pay rate and the existent pay rate paid.

Labour Rate Variance


Actual Time Worked ( Standard Rate – Actual Rate )


AH ( SR – Argon )

The labour efficiency discrepancy occurs from the difference between the existent clip and T he standard clip to make a occupation, which is measured at the standard rate.

Labour Efficiency Variance


Standard Rate ( Standard Time – Actual Time )


SR ( SH – AH )


Labour Cost Discrepancy


SC – Actinium


( SQ – SP ) – ( AQ – AP )


Labour Cost Discrepancy


Labour Rate Variance + Labour Efficiency Variance

It should be noted that the computation of the labour rate discrepancy takes history of the discrepancy as between the different rates of wage, and hence existent hours are priced at the criterion rate when ciphering the efficiency discrepancies ( Pilcher, 1985 ) .

Overhead Discrepancies

The overhead cost discrepancy is the discrepancy that acquired from ciphering the difference between the existent operating expense costs get on an operation and standard operating expense cost set for that operation related to the production financess to be accomplish. The units can change from based to set up criterions. They can be units of production or of clip. Unit of measurements of clip can b in hours, yearss, hebdomads, months or even old ages.

Unit of measurements that are selected should be suited to the nature of plants that is carried out. The units chosen are normally for convenience and economic system of computation and informations aggregation. The purpose of the analysis and the truth and the signifier in which the ultimate information required are besides of import factors that influenced the pick chosen.

There are fixed and variable costs need to be acknowledge when saying the operating expenses. Fixes costs do non change with altering degrees of production but they might change after a certain degree of production has been achieved. For illustration, in operating expenses for site supervising, one chief can be used for many degrees of production and figure of secret agents. However, if the degrees of production have reached, or the Numberss of secret agents exceeds a maximal degree, so, the 2nd chief is needed.

The happening in the difference in the recovery of the related operating expense is called the ‘overhead volume discrepancies ‘ . This happens because of the estimated production or clip taken to bring forth the budgeted measure is greater or lesser than the existent production clip. An unfavourable volume discrepancy happens when a fixed operating expense is non to the full utilised whereas a favourable volume discrepancy happened when the production clip bearing a fixed operating expense is in surplus of the budgeted.

An overhead budget discrepancy is the difference between the existent cost of operating expense incurred and the overhead cost budgeted for that degree of production. An overhead efficiency discrepancy is the difference between the hours really worked to accomplish a specific production mark and the standard hours budgeted to be used to accomplish that production mark.

Control of Material

Controls of stuff are non extremely considered in making cost control systems. This is because that labor and works are the countries fluctuations exist more, and most likely, country where net income is acquired or losingss over the estimated costs. Controls for stuffs should be in footings of unit measuring and non in footings of cost ( Pilcher, 1992 ) .

In instances of shortage, one can non be certain, if that the cost is on the bases of whether the stuffs bought at monetary values lower than estimation have a higher wastage, or whether the stuff are used economically, with small wastage but bought in monetary value higher than the estimations. The cost comparing entirely made for stuffs would non bespeak the true measure of the rate of use for the stuffs.

One easy manner in commanding stuffs is to pull a graph of the measures of assorted stuffs that should hold been used, which is calculated from present measuring of the measures of work carried out. Such graph would be drawn for major points merely. Against this graph, each person can be drawn of a 2nd graph, bespeaking the measure of the stuffs that have been delivered to the site.

Such information can be obtained from the bills received and a running sum can so be easy be maintained. The intercept on perpendicular ordinate between the two graphs should be equal in measure. It is necessary to look into the stock on the site to do the comparing effectual.


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