ADVANCED COST ACCOUNTING & COST SYSTEM-IV

(COST CONTROL & COST SYSTEMS)

M.COM-I SEMESTER-II
Topic-COST REDUCTION

Submitted by:
Name: Jeethu K Jose
Roll No.:1423
 Cost Reduction:
 Meaning:
Cost reduction aims to make real reduction in production costs
or buying price of a good service without reducing suitability of these as
far as the utility for its purpose is concerned. Cost reductions have effect
of reducing the level of previous targets set in cost control system. Cost
reduction should not be confused with cost control. Cost control is the
regulation is the costs of operating a business and is concerned with
keeping expenditure within acceptable limits. The major assumption in
cost control is that unless costs exceed budget or standard by an excessive
amount, the control is that unless costs is satisfactory.
 Methods & Techniques of Cost Reduction:
• Just In Time(JIT) system:
The main aim of JIT is to produce the required items, at
the required quality and quantity, at the precise time they are required.
JIT purchasing requires for the items where too much carrying costs
associated with holding high inventory levels. Purchasing system
reduces the investment in inventories because of frequent order of
small quantities.
• Target Costing:
Target costing refers to the design of product, and the
processes used to produce it, so that ultimately the product can be
manufactured at a cost that will enable the firm to make profit when the
product is sold at an estimated market driven price. This estimated
price is called target price.
• Activity based management (ABM):
Activity based management is the use of activity based
costing to improve operations and to eliminate non-value added cost,
the main goal of ABM is to identify and eliminate non-value added
activities and costs.

• Life cycle costing:

Life cycle costing estimates and accumulates costs over a
product’s entire life cycle on order to determine whether the profits
earned during the manufacturing phase will cover the costs incurred
during the pre an post manufacturing stage.
• Total quality management(TQM):
Under the TQM approach, all business
functions are involved in a process of continuous quality
improvement.

• Value chain:
Value chain analysis is a means of
achieving higher customer satisfaction and managing
assets more effectively. The value chain is the linked set
of valued creating activities all the way from basic raw
materials sources, component suppliers, to the ultimate
end use product or service delivered to the customer.