National College of Business Administration & Economics

(School of Business Administration)

FINAL PROJECT “Impact of Cost Control and Cost Reduction on

Profitability”

SUBMITTED TO SIR SERMAD KHUWAJA

PROJECT BY:
M.SAMEED-UR-REHMAN (2173062)
AHSAN BAIG (2172007)
ANNAS FAISAL (2173097)
SOHAIL AHMAD (2173014)
HAMZA NAVEED (2173104)

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Acknowledgement

First of all, I would like to thank Allah Almighty, who is the creator of everything.
Then I would like to thank our SIR MUHAMMAD SARMAD. His guidance and
support throughout this semester helped us to make this project. Then, thanks to
my other mates and my parents. They co-operated with us all the time.

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 TABLE OF CONTENT
Abstract……………………………………………………………………... 4
Introduction……………………………………………………………......... 5
About Company…………………………………………………………….. 5
Background……………………………………………………………......... 6
Literature Review……………………………………………………............ 6
Discussion…………………………………………………………………... 7
Basic Concept of Cost…………………………………………………......... 8
Cost Control………………………………………………………... 8
Cost Reduction……………………………………………………... 8
Difference B/w Cost reduction measures and profit performance…. 9
Whether cost control and cost reduction can be used as competitive
Strategy for survival tool…………………………………………… 9
About Peek Freans Company……………………………………………….. 10
Strategies…………………………………………………………… 10
How they Increased Their Profit……...……………………………. 10
Brands……………………………………………………………..... 11
Impact on Profitability………………………………………………………. 11
Impact of Reducing Cost……………………………………………………..12
Conclusion…………………………………………………………………... 12
References…………………………………………………………………… 13

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Abstract
In this project we study about cost, cost reduction and cost reduction. Also we
study what is the relation of these cost with profit. As you know about the cost, it is
the whole process in which in which we spend money to make a product to till sale
or deliver it. Cost reduction is the process which is used by the companies to
reduce their cost and increase their profits. On the other hand cost control is the
strategy, mostly companies used this strategy to control their whole expenses or try
to reduce the expenses for the purpose of maximize its profit. Cost Reduction has a
larger scope than cost control as cost reduction is applicable for all the industries,
but cost control is applicable only to the industries. There are many Cost
Reduction measures such as price over price, estimated bid and successful bid.
Both cost control and cost reduction are used as competitive strategy for survival
tools. These strategy will enhance company’s performance with best regards.

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Introduction
Management accounting involves preparing and providing timely financial and statistical
information to business managers so that they can make day-to-day and short-term
managerial decisions. In production, research, retail, and accounting, a cost is the value of
money that has been used up to produce something or deliver a service, and hence is not
available for use anymore. In business, the cost may be one of acquisition, in which case
the amount of money expended to acquire it is counted as cost. The primary  objectives
of any firm is to maximize its profit and the way by  which the management can achieve
this motives is by keeping cost at its lowest level by applying these techniques.

About Company
Peek Freans is the name of a former biscuit making company based
in Bermondsey, London, which is now a global brand of biscuits and related
confectionery owned by various food businesses. English Biscuit Manufacturer its roots
in peek Freans Pakistan Limited. In 1966 peek Freans Pakistan Limited restyled itself as
English Biscuit Manufacturer (private) Limited. After almost five decades, several
bestselling products, and millions of satisfied carvings later, EMB is ready to discover
and deliver fresh flavors, and satisfy millions more. EBM has an annual production
capacity of 155,000 tons.

Our Vision:

To be the leading food company, delighting and nourishing our consumer with superior
products and services; while leading sales, shares and profit, thus allowing people,
community and stakeholders to success.

Our Mission:

To provide wholesome, nutritious, hygienic food-between-meals across Pakistan and

beyond.

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Background
The Company that we have choose to present is Peek Freans Company. The partners
registered their business in 1857 as Peek, Frean & Co. Ltd, based in a disused sugar
refinery on Mill Street in Dockhead, South East London, in the west of Bermondsey. This
project is based on Basic concepts of cost and it will discuss about some strategies
regarding maximizing profitability of manufacturing companies. We will analyze the cost
strategy of Peek Freans Company, Means how they control their cost to increase their
profit. Cost control or reduction are the basic factors to maintaining and growing
profitability. It includes activities such as planning, estimating, budgeting, financing,
funding, managing, and controlling costs so that the project can be completed within the
approved budget. Also we will discuss the relationship between effective cost reduction
measures and profit performance. The Peek Freans Company who make biscuits and now
it is the global brand of biscuits.

Literature Review:
There are many different authors who talk about management accounting and give views
about management accounting whether it is good or not for the company. As Following:

Mr. David Bloom, co-founder and CEO, FD unlimited said that As soon as possible after
the month closes, you should expect to see the Management Accounts for that month.
The longer you leave it, more stale the numbers become. You should not conduct the
monthly Board Meeting without the Management Accounts so this too is dependent upon
timely completion of the financials.

It may sound a little trite but the Management Accounts should only contain what the
Board or Leadership Team really needs to see to allow for informed decision making. It
is a waste of time, especially for your Finance Team to produce reams of analysis when
so often the bulk of what you need to see for an SME (Small and Medium Enterprises)
can fit on one page.

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Mr. Peter Roberts, A Commerce graduate of UCC and a Fellow of the ACCA On May
29, 2015 writes in a Blog, Business Advice; How Management Accounts Can Help Grow
Your Business?
Many business owners initially view management accounts as an additional
administrative burden on their already busy day.  However, management accounts can
actually be a very useful tool when planning and controlling the growth and development
of businesses of all sizes across all sectors.

Joe Lennon, A business and accounts advisor from Wellers Accountants highlights the
different reporting elements of management accounts and the benefits they can bring to
running your business:
Management accounts aren't mandatory, but they are the key to the success of your
growing business. They're usually produced on a regular and consistent basis to ensure
you're getting the most out of monitoring your efforts - typically monthly or quarterly.
Without them it can be difficult to make informed decisions on key matters such
as funding requirements in your organization.
Mr. Andy Pearson, an Oxford University Alumnus, Managing Director at White Fuse
Media, writes on June 7, 2013:
If you understand your finances then you probably understand your business. If you
understand your business you are much more likely to make good decisions that see it
grow. You should prepare management accounts to evaluate the health of your business
and review them regularly. Every month is my recommendation.

Discussion
In this section we are trying to answer for those questions that have been assigned like as
following:
 Basic Concept of Cost, Cost Control and Cost Reduction.
 Relationship between effective cost reduction measures and profit performance.

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  Whether cost reduction and control can be used as competitive strategy for
survival tool.

Basic Concept of Cost

The concept of direct and indirect cost is of basic importance in costing. Costs which are
easily and directly allocated to products or units are termed as direct cost. In the process
of manufacturing of a product, materials are purchased, wages are paid to labor, and
certain other expenses are also incurred directly. There are different types of cost which
is occurred during the manufacturing of a single or number of products. Basically these
cost are called expenses. Cost are as following:

 Fixed Cost
 Variable Cost
 Direct Cost
 Indirect Cost

There are Number of companies which is used different cost strategies as competitive
strategy to increase their profit such as cost control and cost reduction etc.

Cost Control: 

Cost Control is a process which focuses on controlling the total cost through competitive
analysis. It is a practice which works to maintain the actual cost in agreement with the
established norms. It ensures that the cost incurred on an operation should not go beyond
the pre-determined cost.

Cost Reduction: 

Cost Reduction is a process, aims at lowering the unit cost of a product manufactured or
service rendered without affecting its quality by using new and improved methods and
techniques. It ascertains substitute ways to reduce the cost of a unit. It ensures savings in

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per unit cost and maximization of profits of the organization. Cost Reduction aims at
cutting off the unnecessary expenses which occur during the production, storing, selling
and distribution of the product.

Difference between effective cost reduction measures

and profit performance:
As we described above cost reduction aims at lowering the unit cost of a product without
affecting its quality. Its play a vital role for any business whether it is a large business or
a small business. In this we control our budget and make polices regarding reducing cost.

On the other hand, profit performance means a financial benefit that is realized when a
business covers its overall expenses and cover its overall cost and the amount which is
left called profit. We earn profit by using some strategies like control our cost and reduce
our unnecessary expenses etc.

Whether cost reduction and control can be used as

competitive strategy for survival tool:
Cost reduction and cost control can be used as competitive strategy for survival tools.

Today’s every business have dream to earn more profit that is why they are use different

strategies to earn maximum profit. Since Management is concerned with the profitability

which is one of the tools to evaluate the business performance especially in a

manufacturing company, the need of increasing sale will arise and this will eventually

lead to increase in production capacity and as a result lead to increase in cost. Thus, the

need for cost control and cost reduction is required to achieve maximum profit in

competitive market where demand is affected by the price of goods and services.

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Benefits of Cost Control
Cost control work should enhance the efficiency of management and if necessary, should
result in action being taken to reduce the cost for profit purposes and to prevent fraud and
efficiency. Some of these benefits are as follows:
 A simple control can be expressed over all operation from the purchase of goods
to account for sales.
 An efficient cost control with reveal possible sources of economy and result in a
rational utilization of material and labor.
 Cost control makes policy decisions by management very easy.
 It ensures adequate production and prevent over stocking of material.

About Peek Freans Company

Strategies: 
Peek Freans Sooper owns the strategies of using brands to attract its customers and an
efficient strategy of pricing to compete with its competitors that is 'Price aren't be too
high or too low than the competitor's prices'. Customers of all classes can easily have a
delicious bite of this biscuit. This company do not let down their quality to increase
profit.
How They Increased Their Profit:
Fast forward, EBM has now grown to become the country’s largest branded biscuits
manufacturer, enjoying a 45% market share as per the recent Nielsen Survey. With an
annual turnover exceeding Rs22 billion in 2013–14, it is certainly one of the largest
local companies in Pakistan and bigger than some multinational food and FMCG
companies.

Although it has a number of large brands including Rio, Gluco, Peanut Pik and
Sandwiches, it is the flagship biscuit Sooper that alone accounts for almost half of the

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company’s revenues Sooper is well over the Rs10 billion mark, EBM officials say.
Sooper is larger in terms of sales than the sales of all products of any other biscuit
company in Pakistan, EBM says. These statistics explain why Sooper is a household
name for most Pakistanis when it comes to branded biscuits.

Brands
 Marie (1971)
 Butter Puff (1976)
 Peanut Pik (1984)
 Zeera (1984
 Gluco (1987)
 Rio (1996)
 Sooper (1996)
 Farm House Cookies (2011)
 Nan Khatai (2015)
 Chocolicious (2015)

Impact on Profitability:
We have discussed better categorization of costs, but management accounting also
permit better allocation of costs to departments per cost center and even customer or
project.

Using this information, we can analyze the cost effectiveness of the job performed and
can ascertain how much has been earned per specific customer, order, etc. This also
allows us to improve the company’s efficiency: prioritizing customers or types of projects
that are more profitable than others, refocusing the business where necessary, increasing
cost effectiveness through analysis of indirect costs, etc. This is equally applicable to the

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company’s departments or cost centers. Through management accounting, we can
calculate profitability by taking into account other factors besides purely financial
considerations. For example, if you have several establishments you can tell which is
most profitable or you can ascertain the return generated by the departments of marketing
and finance, two types of department which are not strictly speaking productive.

Impact of Reducing Costs

Reducing costs increases profitability, but only if sales price and number of sales remain
constant. If cost reductions result in a lowering of the quality of the company's products,
then the company may be forced to reduce prices to maintain the same level of sales. This
can wipe out any potential gains and result in a net loss.

To conclude, as we have seen, cost is a complex subject that reaches far beyond the individual
budget of any given project. Different departments of the company use cost information in
different ways, and the information must be formulated to suit the company area that it serves.
Cost reduction and cost control are plays a vital role and many company has used these cost and
many other cost strategies to gain maximum profit. Like in this report we have taken Peek Freans
Company, this company also use cost strategies which is directly effect on their profits. They
introduced Sooper and Rio biscuit in 1996 which was very beneficial for the company. Its create
demand because they provide best quality and taste with normal price. This company never let
down their quality to increase their profit. In recent year Peek Freans introduced another Biscuit
named Nan-Khatai which is also very beneficial for the company.

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References:

http://www.essay.uk.com/coursework/management-accounting.php

http://www.robertsnathan.com/how-management-accounts-can-help-grow-your-
business/
http://www.wellersaccountants.co.uk/blog/what-to-include-in-the-preparation-
of-monthly-management-accounts
http://www.consultbc.com/uncategorized/how-managers-can-use-accounting-
information-to-make-better-decisions/
https://tribune.com.pk/story/741706/biscuit-manufacturers-ebms-story-and-the-
journey-that-lies-ahead/

http://www.ebm.com.pk

https://en.wikipedia.org/wiki/English_Biscuit_Manufacturers

https://www.scribd.com/doc/99230367/marketing-plan-for-peek-freans

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