Cost Reduction Is Basically The Strategy Of Cutting The Cost Accounting Essay

Introduction:

Cost decrease is fundamentally the scheme of cutting the cost of the merchandise to increase the profitableness. It may be utile when a company is fighting. In some instances, the house is get downing a policy to take waste and ineffectualness. In cost decrease we are utilizing different methods such as value analysis and value technology ; these are the procedure of looking throughout the supply concatenation for chances to cut down cost, better quality and cut down waste in merchandises and different procedures. Now the value analysis and value technology methods are implementing on our selected company named as “ AHSAN SPORTS ” , involved in doing of athleticss merchandises particularly cricketing merchandises and exports their merchandises to South Africa and Zimbabwe. In this assignment I am discoursing activity based costing, entire quality direction and there advantages and disadvantages, so we are doing a study on the foundation of these facts which includes cost decrease.

Cost Decrease:

Harmonizing to CIWA-London “ Cost Reduction is to be understood as the accomplishment of existent and lasting decrease in the unit cost of goods manufactured or services rendered without impairing their suitableness for the usage intended or decline in the quality of the net income ” .

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A cost decrease plan is used by direction when the company may cut down the cost from the quality of net incomes or it may be implemented when the company is holding the fiscal jobs by utilizing this company will once more on the manner to heighten their net incomes and it is merely utile in such a manner when the company besides maintain the quality of merchandise because without quality company rebelliously lose their clients.

WHY WE USE COST REDUCTION:

A cost decrease program efficaciously gets more net income and occupies a desirable place in the industry. The stockholders get higher dividends and the employee ‘s higher emoluments. The organisation should construct up good will and authorities gets more returns due to increased nonexempt capacity. The clients can acquire good quality merchandises in sensible monetary values.

Activity Based Costing ( ABC ) in Cost Decrease:

The activity-based costing method ( ABC ) promoted by Cooper and Kaplan provides a more precise step of cost because it traces indirect costs more closely with respect to the different types of activities consumed. Armed with cognition of what activities are consumed by each merchandise and the supply cost of each activity, one can budget costs for a assortment of merchandises or we can state that it is the procedure of ciphering the cost of each single entity used in the fabrication procedure to the merchandising of the merchandise these can be material cost, production cost, labour cost, technology cost etc in this procedure the sum of each entity is calculated separately and the at the terminal all the sum can be added to happen the concluding cost of the merchandise.

AHSAN SPORTS AS EXAMPLE:

Now we take the informations of two chief merchandises of AHSAN SPORTS as an illustration on which we apply the construct of cost decrease by utilizing activity based costing.

Particulars

Bat

Balls

Sum

Gross saless ( units )

80,000

25,000

105,000

Raw Wooden sheets ( units )

12

8

950,000

Direct Material Cost ?

24

30

3,025,000

Direct Labour Hours

2

4

3,240,000

Machine Hours

4

4

475,000

Direct Labour Cost ?

25

35

3,250,000

Number of production Runs

4

15

19

Number of bringings

14

10

24

No. Of Grosss

40

60

100

Number of Production Orders

35

30

65

Over Head Costss:

Set Up

60,000

Machine

900,000

Receiving

800,000

Packing

550,000

Engineering

650,000

Entire

2,960,000

Now we calculate the cost of production for each merchandise by the aid of cost drivers.

Set-Up O/H Rate = ? 60,000/19 = ? 3,157.89

Machine Hrs O/H Rate = ?900,000/475000= ?1.8947

Receiving Cost = ?900,000/100hrs= ? 9,000

Packing Cost = ?550,000/24 = ?22,916.7

Engineering Cost = ?650,000/65 = ? 10,000

Particulars

Bat

Ball

No. Of Grosss

40

60

9,000

9,000

T. Receipt Cost

360,000

540,000

Gross saless & A ; Production Unit of measurements

80,000

25,000

Per Unit Cost

4.5000

21.6000

Particulars

Bat

Ball

No. Of Deliveries

14

10

22,917

22,917

320,834

229,167

Gross saless & A ; Production Unit of measurements

80,000

25,000

Per Unit Cost

4.0104

9.1667

Particulars

Bat

Ball

No. Of Orders

35

30

10,000

10,000

350,000

300,000

Gross saless & A ; Production Unit of measurements

80,000

25,000

Per Unit Cost

4.3750

12.0000

Particulars

Bat

Ball

No. Of Hours

4

4

Per Hour Rate

1.8947

1.8947

7.5788

7.5788

Particulars

Bat

Ball

No. Of Production Unit of measurements

4

15

3,157.8900

3,175.8900

12,632

47,638

Gross saless & A ; Production Unit of measurements

80,000

25,000

Per Unit Cost

0.1579

1.9055

Preparation of Cost/Unit Sheet

Particulars

Bat

Ball

D. Material

24.0000

30.0000

D. Labour

25.0000

35.0000

Machine Hours

7.5788

7.5788

Set-UP Cost

0.1579

1.9055

Receiving Cost

4.5000

21.6000

Packing Cost

4.0104

9.1667

Engineering Cost

4.3750

12.0000

T.C of Production

69.6221

117.2510

Activity based bing provides more accurate merchandise cost Numberss for selling determinations about pricing and about which merchandises to maintain or extinguish. It helps production directors by supplying better information about how much each activity costs. ABC identifies antecedently unknown cost drivers. Activity based bing provides more information about merchandise costs, but requires more record maintaining.

Value Analysis and Value Engineering:

Harmonizing to Sato, Y. ( 2005 ) Value Analysis is the procedure of looking throughout the supply concatenation for chances to cut down cost, better quality and extinguish waste in merchandises and assorted procedures. Participating in Value Analysis activities finally consequences in a more competitory priced and/or improved choice merchandise for providers.

( Patail, 2010 ) states that the value technology and value analysis is a procedure used by multidisciplinary squad directed to analysing the map of undertaking, merchandise, procedure, system and design or the services intent of accomplishing the basic map at the lowest life rhythm cost consistent with needed public presentation, dependability quality efficiency and safety.

So it is concluded that these are the methodswhich is used by the directors to cognize the value of the merchandise and its operation. Then these methods provide helps to the directors to cipher activity based budget for the merchandise in the hereafter.

Entire Quality Management:

TQM was implemented in the company to accomplish the aims of fixing the company ‘s merchandises and internal procedures to planetary criterions. Enhancing quality, productiveness, and entire public presentation of the organisation. Enriching the quality of work life of its employees.

TQM is based on the engagement of all members of an organisation in bettering procedures, merchandises, services, and the civilization in which they work. Quality of a merchandise or services is its ability to fulfill the demands and outlooks of the client.

ADVANTAGES OF TQM:

Entire Quality Management offers houses several advantages which are as follows:

Image of the administration has improved ( client good will )

Decrease in stock list

Shorter lead clip in design, fabrication, procurement service ( safe clip )

Decrease in rejections and ailments ( mending )

Customer satisfaction

Lower fabrication cost

DISADVANTAGES OF TQM:

Initial debut costs- preparation workers and interrupting current production while it is being implemented.

Benefits may non be seen for several old ages.

Workers may be immune to change- may experience secure in occupations

Decision:

Activity Based Costing is better than Traditional Costing as it provides a more accurate costing of products/services, which would steer to better estimations of the company ‘s grosss and disbursals. Such accurate costing would besides take direction to do better determinations in brand or purchase determinations every bit good as in make up one’s minding on whether a merchandise should be dropped or non, if company wants to accomplish its end in better manner they should hold to implement the ABC by the aid of this technique company can minimise the cost of merchandise and the quality of the whole merchandise is besides good.