Page 191 - DCOM206_COST_ACCOUNTING_II

Cost Accounting – II

Notes (iii) Value Analysis,
(iv) Linear Programming,
(v) Modernisation and Technological Advances,
(vi) Labour Productivity, and

(vii) Managerial Control.
All these are discussed in detail below:
(i) Simplification: The basic principle of simplification is that a single item shall serve as
many different applications as possible. Simplification means elimination of superfluous
varieties, size, dimension and grades of raw materials and component parts. Reduction as
it is essentially a reduction process, a cutting down of varieties of materials.
(ii) Standardisation: Standardisation in a production sense means the reduction of a line of
product to fixed types, sizes and characteristics. It’s defined, “Standardisation primarily
means setting up standards by which the extent, quantity, value, performance or service
may be gauged or determined and is the crystallised best thought and practice of industry
into definite forms for general use.”
(iii) Value Analysis: Value analysis is one important technique of cost reduction. This technique
was first developed by Lawrence D. Miles of General Electric Company, USA. In a broad
sense, it is a study of element wise cost of an item such as quality, design, methods and
techniques of manufacture, etc., with a view of reduce the ultimate cost of product. Value
analysis also means the determination of the value of items proposed to be sought with a
view to examine the worth of money spent on buying the raw materials.

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Caution Value analysis is based upon the quality of raw materials in relation to their
functional value and price. This reduces the cost of purchase and enhances the profit of the
industry or organisation.
(iv) Linear Programming: Sometimes, it is possible to reduce the cost without making any
substantial change in the design of the product or price or number of inventory. This is
possible only through the use of linear programming technique. Linear programming is
a quantitative technique which is used to solve problem such as inventory, scheduling,
transportation problem, etc.
(v) Modernisation and Technological Advances: Plant modernisation and technological
advances in the production process is often associated with industrial automation.
Improvements of this type can make it possible for organisation to break out of the cost,
price and profit. Some improvements in technology also make possible the use of raw
materials that formerly were not profitable to use.

(vi) Labour Productivity: It is necessary to engage the right workman possessing the right
attitude to do the right work. The efficiency of the workers can be increased by motivating
them in a suitable manner. This can be done by introducing various incentive schemes,
good working conditions and taking measures to increase their welfare and safety. In this
manner, his productivity of labour would rise and thereby the cost of labour per unit
would decline.
(vii) Managerial Control: Organisations making an effort to reduce costs on a long range basis
frequently install or upgrade various types of managerial control systems. Not only does
such control draw attention to opportunities for cost reduction in many areas but, perhaps

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