Page 260 - DCOM206_COST_ACCOUNTING_II

Unit 14: Emerging Concepts in Cost Management

– union versus non-union labour; bargaining power vis-à-vis suppliers; locational variables Notes
in terms of wage levels, tax rates, energy costs, inbound and outbound shipping and
freight costs and so on; supply chain management expertise.
4. Link with other activities in the company or industry value chain: Costs can be managed
downward by making sure that linked activities are performed in cooperative and
coordinated fashion.
5. Sharing opportunities with other organisational or business units within the enterprise:
such combining of like activities and sharing of resources across sister units can create
significant cost savings.
6. The benefits of vertical integration versus outsourcing.

7. Timing considerations associated with first-mover advantages and disadvantages.
8. The percentage of capacity utilisation.
9. Strategic choices and operating decisions – a company’s costs can be driven up or down by
a fairly wide assortment of managerial decisions:
 Adding/cutting the services provided to buyers.
 Incorporating more/fewer performance and quality features into the product.
 Increasing/decreasing the number of different channels utilised in distributing the
firm’s product.
 Lengthening/shortening delivery times to customers.
 Putting more/less emphasis than rivals on the use of incentive compensation, wage
increases, and fringe benefits to motivate employees and boost worker productivity.
 Raising/lowering the specifications for purchased materials.
Option 2: Revamp the firm’s overall value chain to eliminate or bypass some cost-producing
activities. The primary ways companies can achieve a cost advantage by reconfiguring their
value chains include:

 Making greater use of Internet technology applications
 Using direct-to-end-user sales and marketing approaches
 Simplifying product design
 Stripping away the extras

 Shifting to a simple, less capital-intensive, or more streamlined or flexible technological
process-computer-assisted design and manufacture, or other flexible manufacturing
systems, can accommodate both low-cost efficiency and product customisation.
 Bypassing the use of high-cost raw materials or component parts.
 Relocating facilities-moving plants closer to suppliers, customers, or both can help curtail
inbound and outbound logistics costs.
 Dropping the ‘something for everyone approach-pruning slow-selling items from the
product lineup and being content to meet the needs of most buyers rather than all buyers
can eliminate activities and costs associated with numerous product versions.
 Re-engineering core business processes to consolidate processes to consolidate work steps
and cut out low value-added activities.

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