In the cost control process, which action best represents the first step?

In the cost control process, which action best represents the first step?

• A. Review historical sales data
• B. Train staff in cost procedures
• C. Set prices to maximize profit
• D. Establish standards or define the goals

Answer: (D)

Establishing standards or defining the goals is the first step because cost control hinges on knowing exactly what cost levels are acceptable. By setting budgeted costs, standard costs, and performance targets, you create clear benchmarks. With those in place, you can compare actual costs against targets, identify variances, and drive corrective actions. Without standards, you can't reliably measure performance or know where to focus effort. Reviewing historical sales data is useful for understanding trends and informing budgets, but it serves to refine targets rather than replace the initial step. Training staff in cost procedures is essential for implementation, but it follows after targets are set. Setting prices to maximize profit is a pricing decision that affects revenue and demand, not the immediate first step of measuring and controlling costs.

Establishing standards or defining the goals is the first step because cost control hinges on knowing exactly what cost levels are acceptable. By setting budgeted costs, standard costs, and performance targets, you create clear benchmarks. With those in place, you can compare actual costs against targets, identify variances, and drive corrective actions. Without standards, you can't reliably measure performance or know where to focus effort.

Reviewing historical sales data is useful for understanding trends and informing budgets, but it serves to refine targets rather than replace the initial step. Training staff in cost procedures is essential for implementation, but it follows after targets are set. Setting prices to maximize profit is a pricing decision that affects revenue and demand, not the immediate first step of measuring and controlling costs.