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 ” .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 )80,00025,000
105,000
Raw Wooden sheets ( units )128
950,000
Direct Material Cost ?2430
3,025,000
Direct Labour Hours24
3,240,000
Machine Hours44
475,000
Direct Labour Cost ?2535
3,250,000
Number of production Runs415
19
Number of bringings1410
24
No.
Of Grosss4060
100
Number of Production Orders3530
65
Over Head Costss:
Set Up60,000Machine900,000Receiving800,000Packing550,000Engineering650,000
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 = ? 3,157.89Machine Hrs O/H Rate = ?900,000/475000= ?1.8947Receiving Cost = ?900,000/100hrs= ? 9,000Packing Cost = ?550,000/24 = ?22,916.
7Engineering Cost = ?650,000/65 = ? 10,000
Particulars
Bat
Ball
No. Of Grosss40609,0009,000T. Receipt Cost360,000540,000Gross saless & A ; Production Unit of measurements80,00025,000Per Unit Cost
4.5000
21.6000
Particulars
Bat
Ball
No. Of Deliveries141022,91722,917320,834229,167Gross saless & A ; Production Unit of measurements80,00025,000Per Unit Cost
4.0104
9.1667
Particulars
Bat
Ball
No.
Of Orders353010,00010,000350,000300,000Gross saless & A ; Production Unit of measurements80,00025,000Per Unit Cost
4.3750
12.0000
Particulars
Bat
Ball
No. Of Hours44Per Hour Rate1.89471.89477.57887.
5788
Particulars
Bat
Ball
No. Of Production Unit of measurements4153,157.89003,175.890012,63247,638Gross saless & A ; Production Unit of measurements80,00025,000Per Unit Cost
0.1579
1.9055
Preparation of Cost/Unit Sheet
Particulars
Bat
Ball
D. Material24.000030.
0000D. Labour25.000035.0000Machine Hours7.
57887.5788Set-UP Cost0.15791.
9055Receiving Cost4.500021.6000Packing Cost4.
01049.1667Engineering Cost4.375012.0000
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 listShorter lead clip in design, fabrication, procurement service ( safe clip )Decrease in rejections and ailments ( mending )Customer satisfactionLower 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.
