UNIT-2

1.Cost reduction and control.

Cost Control is a process in which the focus is on controlling the total cost through competitive
analysis. It is a practice which works to align the actual cost in agreement with the
established norms.
It involves:

1. Determination of standards;

2. An analysis of the variances;

Cost Reduction is a process, which aims to lower the unit cost of a product manufactured or
service rendered without affecting its quality. It can be done by using new and improved methods
and techniques. 
Cost reduction ensures savings in per unit cost and maximization of profits of the enterprise.
Differences:

1. Cost Control focuses on decreasing the total cost of production while cost
reduction focuses on decreasing per unit cost of a product.

2. Cost Control is a temporary process in nature. Unlike Cost Reduction which is a

permanent process.

3. The process of cost control will be completed when the specified target is
achieved. Conversely, the process of cost reduction is a continuous process. It has
no visible end. It targets for eliminating wasteful expenses.

4. Cost Control does not guarantee quality maintenance of products. However, cost
reduction assured 100% quality maintenance.

5. Cost Control is a preventive function because it ascertains the cost before its
occurrence. Cost Reduction is a corrective function.

2. Tools and Techniques of Cost Reduction

The following tools and techniques are used to reduce costs:

1. Budgetary Control
2. Standard Costing
3. Planning and Control of Finance
4. Cost Benefit Analysis
5. Contribution Analysis
6. Material Control
 7. Labour Control
8. Overheads Control
9. Market Research

3. What is Value Analysis?

Value analysis (VA) is a tool to enhance cost efficiency by evaluating the functionality of a
product or a process in relation to its cost. It helps identify and eliminate unnecessary costs
incurred while making a product or conducting a business function.

Benefits of Value Analysis

 reduce costs;

 maintain high quality;

 provide an opportunity to use new technologies;

 eliminate waste;

 encourage new ideas;

 improve brand image;

 improve design.

Limitations:
(a) Lack of motivation

(b) Lack of knowledge and patience

4. Quality Costing

Quality costing or quality cost or cost of quality (COQ) constitute the

costs that a company incurs to come up with a quality product. Or,
we can say it is the cost to prevent, detect, and address quality
issues in a product. Or, we can say, COQ includes the cost to avoid
low-quality production, as well as costs that a company incurs after
it produces inferior quality goods.

For example, if a customer buys a budget smartphone, he or she

would not expect it to have premium features, such as 5-6 cameras,
long battery life, more storage, etc. Instead, the user would at least
expect it to work correctly.