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Cost Reduction

Meaning
Cost Reduction may be defined as the
real and permanent reduction on the cost
of goods manufactured/sold or the
services rendered without impairing their
quality and suitability for the intended
use.
Fields Covered by Cost
Reduction
 Product Design
 Organisation
 Factory Layout and Equipment
 Production Plan, Programme and Methods
 Administration
 Marketing
 Personnel Management
 Material Control
 Financial Management
Advantages of Cost Reduction
 Increases profit – dividends to shareholders.
 Money for labour welfare schemes.
 Goods will be available at a cheaper rate.
 Meets competition
 Revenue to government by taxation.
 Export price may be lowered.
Advantages
 Costreduction is obtained by increasing
productivity.

 Cost reduction lays emphasis on


continuous search for improvement
which will improve the image of the firm
for long – term benefits.
Dangers of Cost Reduction
 Quality may be sacrificied at the cost of
reduction in cost.
 Cost reduction programme may not be
liked by the employees.
 Reduction in cost may not be real and
permanent.
 Conflict between organisational objective
and individual objective.