Page 195 - DCOM206_COST_ACCOUNTING_II

Cost Accounting – II

Notes  Cost reduction improves the competitive capabilities of the organisation. The extent to
which the costs are reduced becomes an index of efficiency attained by the industries or
organisations.
 Cost reduction benefits not only to the concern but to entire industry or organisation. If a
department is running efficiency, other departments in the industry will have to follow
and adopt the efficient practices.

10.6 Keywords

Cost Control: It is a preventive action. It tries to keep costs confined to the limits set by norms.
Cost Reduction: It is to be understood as the achievement of real and permanent reductions in
the unit cost of the products manufactured or services rendered without imposing their suitability
for the use that is intended.
Standardisation: Standardisation in a production sense means the reduction of a line of product
to fixed types, sizes and characteristics.

Value Analysis: Value analysis is one important technique of cost reduction. 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.

10.7 Review Questions

1. Define cost reduction.
2. Distinguish between cost control and cost reduction.
3. State the advantages of reducing cost in an organisation.

4. Explain the various areas covered by cost reduction programme in detail.
5. Discuss the various techniques of cost reduction.
6. Explain the scope of cost reduction.
7. Cost reduction lays stress partly on present costs and mainly on future costs. Comment.
8. Is cost reduction a preventive or corrective action? Give suitable reasons to support your
answer.

Answers: Self Assessment

1. Preventive 2. Dynamism
3. reduction 4. Overheads

5. Variable 6. Design
7. Production 8. Unit
9. reduced 10. Simplification
11. Standardisation 12. efficiency

13. industrial 14. Value analysis
15. quality

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