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    Cost Control and Cost Reduction

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    bombfoda
    1. Cost control involves setting targets, comparing actual performance to standards, and taking corrective action to prevent waste and optimize costs. 2. Cost reduction aims to permanently lower unit costs by reducing costs or increasing productivity. 3. The document discusses ways companies can control and reduce costs through improving production methods, marketing, administration, outsourcing non-core functions, optimizing capacity utilization, reducing material and labor costs, and pursuing a combination of low-cost strategies.

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    Cost Control and Cost Reduction

    Uploaded by

    bombfoda
    2K views15 pages
    1. Cost control involves setting targets, comparing actual performance to standards, and taking corrective action to prevent waste and optimize costs. 2. Cost reduction aims to permanently lower unit costs by reducing costs or increasing productivity. 3. The document discusses ways companies can control and reduce costs through improving production methods, marketing, administration, outsourcing non-core functions, optimizing capacity utilization, reducing material and labor costs, and pursuing a combination of low-cost strategies.

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    1. Cost control involves setting targets, comparing actual performance to standards, and taking corrective action to prevent waste and optimize costs. 2. Cost reduction aims to permanently lower unit costs by reducing costs or increasing productivity. 3. The document discusses ways companies can control and reduce costs through improving production methods, marketing, administration, outsourcing non-core functions, optimizing capacity utilization, reducing material and labor costs, and pursuing a combination of low-cost strategies.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    2K views15 pages

    Cost Control and Cost Reduction

    Uploaded by

    bombfoda
    1. Cost control involves setting targets, comparing actual performance to standards, and taking corrective action to prevent waste and optimize costs. 2. Cost reduction aims to permanently lower unit costs by reducing costs or increasing productivity. 3. The document discusses ways companies can control and reduce costs through improving production methods, marketing, administration, outsourcing non-core functions, optimizing capacity utilization, reducing material and labor costs, and pursuing a combination of low-cost strategies.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    of 15

       

     Cost control is simply the prevention of


    waste within the existing environment.
     Cost control is the procedure where by
    actual results are compared against the
    standards, so that waste can be
    measured and corrective action can be
    taken.
     Cost control is process of utilizing the
    available resource economically.
     
     
    Cost reduction may defined as an attempt
    to bring cost down.
     Cost reduction implies real and
    permanent reduction in the unit costs.
     The goal of cost reduction is achieved in
    two ways
    By reducing the cost per unit
    Increasing the productivity
     The manufacture of plastic articles using injection die
    casting technology gives rise to small quantities of
    waste, which previously went to the recycling
    industry. A crusher has been installed in order to
    return this waste material directly into the production
    process, after transforming the waste material to a
    granulate.

     The granulate obtained in this way can be added to


    the production process without impairing product
    quality. The savings are about 220,000 kilograms of
    new injection die casting granulate per annum. As
    the cost of making the granulate is 75% below the
    cost of new material, It also eliminates the disposal
    charge for used plastic.
        

    Êeplacement of business travel by using


    modern electronic communications
         
     
    
     
       J. Cost reduction is not concerned with
    J. Cost control process involves setting targets and standards. Cost
    setting targets and standard, reduction is the final result in the
    ascertaining the actual cost control process.
    performance, comparing the 2. Cost reduction aims at improving the
    actual performance with standards. It challenges standards
    standard, investigating the and assumes existence of
    variances and taking corrective concealed potential savings in
    action. standards.
    2. It aims at achieving the standard 3. It is continuous, dynamic and
    3. Follows conservative procedure innovative in nature, looking always
    4. It is a preventive function for measures and alternative to
    5. In cost control, costs are reduce costs.
    optimized before they are 4. It is a corrective function
    incurred 5. In cost reduction, there is always
    6. It is generally applicable to items assumed a scope for reducing the
    which have standards incurred costs under controlled
    7. It contains guidelines and conditions.
    directive management as to how 6. This is applicable to every activity of
    to do a thing. the business
    7. It adds thinking and analysis to
    action at all levels of management
    Benefits from cost control and reduction programme

    Better and economic use of men, machines


    and money Êeasonable prices

    Optimum level of productivity Better standing in competitive market

    Increased exports More foreign earnings


    Optimum level of quality

    Optimum profitability

    Optimum return on capital employed

    Optimum return on shareholder¶s funds

    Confidence in investors
    Better chance for expansion
    Economic stability
    Increased credit worthiness
     
     
     roduct improvement
    Quality, time, minimisation of waste, design
     roduction method and layout
    Material control, labour control, production layout, systems
    analysis, time and motion study, work measurement,
    Standardisation, tools, equipment, modernization and apply
    incentives
     Marketing areas
    Channels, promotion schemes, research, area responsibility,
    remuneration to executives, advertising methods, after-sales-
    services, packaging method, material handling, transport
    arrangement
    Administrative areas
    policies, procedures, rules, efficiency, economies of
    scale, welfare measures, availability servicing facility,
    and constant motivation to staff
       
     Êesource Êeducing rojects

    Staffing by activity
    Staffing on a J2 hours shift basis
    Decentralizing transport services
    Closing low activity departments during holidays
    Shared services arrangement
    Telephone interconnect systems
    Waste deposal system/ treatment plant
    Development of accurate census forecasts
    Employee incentive plan
    Computerized inventory systems
       
     rice Êeducing rojects

    Group purchasing arrangements


    Negotiating professional contacts on volume of
    professional work and not percentage of revenue
    Êebates from state workers¶ compensation funds due
    to safety programs
    Self insuring unemployment insurance benefits
    Installing own well and water system
              
      
     Capacity utilization is a key driver in cost
    management and production efficiency .
     Capacity utilization is important for all organizations,
    and at all levels of an organization.
     In addition, it becomes important in many industries
    where fixed costs are high.
     The capacity utilization decisions have a real impact
    on product lead times, customer responsiveness,
    costs and a firm¶s ability to compete: output,
    customer demand, operational costs, improved
    production capacity, long-term resource
    commitment, and competitiveness
            

     In this case, the company¶s attention turns to


    finding low-cost alternatives to meeting customer
    demand, such as moving production to areas
    where labor rates are low.
     The company can use other alternatives to
    deploy this approach such as reducing material
    costs but not at the cost of quality, substituting
    technology for people when economies of scale
    provide savings.
        
     Organization has few fixed assets - few core competencies
    critical to long-term market success
     While any non-core activity or capacity resource is
    outsourced.
     This way has strengths such as increased flexibility and
    responsiveness, reduced inventory risk, and improved
    returns on investment. However, optimization capacity
    utilization through this way is not without weaknesses or
    risks.
     Thus, the cost and profit performance should be compared
    to investment levels in order to detect these undesirable
    trends. In addition, using the bundling of several optimization
    ways provides the greatest potential for overall performance
    improvements.
      
     
     Finally, any of the previous ways can be used
    alone, however, it is best to choose several
    dimensions of capacity as the basis for the
    capacity optimization effort.
     For example, low cost and profit maximization may
    be pursued jointly if resources are focused on the
    areas where cheap resources are available to
    meet a currently unmet level of demand.
     For each way, the goal must be to identify what
    business risks each represents to the organization,
    and then choose one or more offsetting ways to
    ensure that these risks are reduced or managed.

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