Final answer:
Cost control in business management utilizes variances such as direct material, direct labor, and manufacturing overhead to identify areas requiring management intervention. Variances caused by uncontrollable external factors are not useful for cost control since they can't be anticipated or managed.
Step-by-step explanation:
Cost control is a vital function in business management, assessing whether the actual costs of production are in line with the planned costs. Variances used for cost control are often classified as either favorable or unfavorable and can pinpoint areas where management may need to intervene.
- Direct Material Variance - This includes material price variance, which analyzes the difference between the expected cost of materials and the actual cost, and material usage variance, which looks at the quantity used versus what was planned.
- Direct Labor Variance - This encompasses labor rate variance (the difference in labor costs) and labor efficiency variance (the amount of labor time used as opposed to budgeted).
- Manufacturing Overhead Variance - This can be either variable (referring to costs like utilities that change with production levels) or fixed (rent or insurance costs).
Some variances, such as those related to external market conditions or unpredictable events, are not useful for cost control because they are outside the company's control. For example, an unexpected surge in material costs due to a natural disaster would result in a variance that management could not have anticipated or controlled.
In summary, variances that can be actively managed and are reflective of business performance are used for cost control, whereas variances due to uncontrollable external factors are not used for this purpose.