Page 185 - DCOM206_COST_ACCOUNTING_II

Cost Accounting – II Gopika Juneja, Lovely Professional University

Notes Unit 10: Cost Reduction and Cost Control

CONTENTS
Objectives
Introduction

10.1 Concept of Cost Reduction
10.1.1 Distinction between Cost Control and Cost Reduction
10.2 Scope and Areas of Cost Reduction

10.3 Advantages of Cost Reduction
10.4 Techniques of Cost Reduction
10.5 Summary
10.6 Keywords
10.7 Review Questions

10.8 Further Readings

Objectives

After studying this unit, you will be able to:
 Explain the concept of cost reduction;
 Discuss the difference between cost reduction and cost control;

 Describe the areas and scope of cost reduction;
 Discuss the advantages of cost reduction;
 State the techniques of cost reduction.

Introduction

A business organisation must survive, grow and prosper. The cost reduction refers to activities
necessary for ensuring that the objectives are fulfilled. With the liberalisation of the Indian
economy and globalisation, there is now a cut-throat competition from various corners of the
world.
One of the main objectives of a business enterprise is to earn maximum profit. The profit may be
increased through some important methods such as
(i) Increasing the selling price of the products,
(ii) Increasing the demand through sales promotion,
(iii) Reducing the selling price on the basis of market demand and increase the sales turnover,
and
(iv) Reducing the cost of production for a given output or increasing the production for the
same cost.
Though profits may be increased by one of above methods, yet the last method seems to be the
best. Cost reduction is a systematic effort to improve profit margins by eliminating all forms of

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