Managerial economics cost control and cost reduction 2. Marginal cost is the change in the total cost or the total variable cost due to a unit change in the level of output. This environment is made up of agreed operating methods for which standards have been developed. With the liberalization of the indian economy and globalization, there is now a cut throat competition from various concerns of the world. Identify the conventions and doctrines of managerial and cost accounting and other generally. Comparison of methods for pricing of the product and its impact on.
Cost analysis helps allocation of resources among various alternatives. C q f q f p f where c q is the total production cost, q f is the quantities of inputs employed by the firm, and p f is the prices of relevant inputs. Cost control is a preventive function as it ascertains the cost before its occurrence. Cost control is a technique which makes available the necessary information to the management that actual costs are aligned with the budgeted costs or not.
A total number of 50 questionnaires were administered and used for the study. For managerial decisions in the short run, direct costs are more relevant. However, the cost of tracking each rivet to each unit of equipment could be more than the cost of the rivets themselves. Hence the guidance and regulations of cost are set as per expressed in the policy statements and budget. This doesnt necessarily involve cost reduction but is a process of confirming that spending conforms to plans, policies and regulations. This study investigated the consequences of cost management quality on. The complete programme, or individual sessions or parts of sessions, can also be incorporated in. Cost reduction is a process which actually starts from where cost control ends. Bachelor of business administration financial investment. Cost control aims at ensuring that resources are used to the best advantage. Cost control is the practice of identifying and reducing business expenses to increase profits, and it starts with the budgeting process.
Effect of cost control and cost reduction techniques in. These efforts might be part of a formal, companywide program or might be. Transaction cost economics tce is one of the most established theories to address this fundamental question. The importance of the cost information in making decisions 52 the.
Transaction cost economics as a theory of the firm. Cost control is achieving the cost target as its objective while cost reduction is directed to explore the possibilities of improving the targets or company profitability. Cost control and reduction refers to the efforts business managers make to monitor, evaluate, and trim expenditures. Jan 02, 20 there are two different concepts between cost control and cost reduction. Factors and ways to reduce product costs revista espacios. Production management aims at minimising the cost of product activities of business. Cost reduction is to be understood as the achievement of real and permanent reduction in the unit. Key topics covered in managerial economics ebook, lecture notes pdf demand theory demand analysis, elasticity concepts, demand forecasting, and importance of demand forecasting cost of production. Cost control is simply the prevention of waste within the existing environment. Use the course as described in this manual can be used for a specialised course on cost accounting. This research work is aimed at highlighting the role played by cost accounting information to the planning, control and decision making process of the management of an organization using nigeria bottling company nbc as a case study. In fact, knowledge of cost theory is essential for making decisions relating to price and output. The cost of inexpensive rivets used to fabricate equipment would be a direct cost.
Other cost reduction techniques i am going to deal with, standard of production, tools and equipment. 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 where pre optimisation of the cost which is not yet incurred is possible. Coase, in 1937, was the first to highlight the importance of understanding the costs of transacting, but tce as a formal theory started in earnest in the late 1960s and early 1970s as an attempt to understand and to make. Managerial economics ebook, lecture notes pdf download for. Usually, this objective is represented by the cost reduction. Facilitation of cost control and cost reduction basis of managerial decision making. Explain the concept of value analysis as a technique of cost reduction. Naturally, cost control is and will continue to be of perpetual concern to the industry. It is derived from the production function which captures the technology of a firm.
This cost equation says that cost of production depends on prices of inputs and quantities of inputs used by the firm. To achieve success in cost reduction, the management must be. The importance of both, cost accounting and financial accounting cannot be undermined. It is a continuous process to have continuous economy in costs. Cost accounting cost reduction a the institute of management accountants, london. Difference between cost control and cost reduction with. Cost reduction techniques free download as powerpoint presentation.
In the long run, all costs being variable, production costs and managerial costs of a firm are taken into account when considering the effect of expansion of output on average costs. Cost control and cost reduction, sample of term papers. But problems are more complex in a multiproduct firm. The following are the major differences between cost control and cost reduction. Cost control areas of cost control techniques of cost. The application of cost accounting to management planning, control and decision making a case study of coca cola bottling company abstract. Therefore, cost control will end the exercise when achieved the organization target or objective.
In these days of everincreasing costs the majority of promoters of building work are insisting on projects being designed and executed to give maximum value for money. It undertakes to guide and regulate cost needs to ensure that they are in accordance with the predetermined objectives of the business. Cost reduction in managerial economics mba knowledge base. The two are different from each other on the basis of meaning, objectives, mode of presentation. Transaction cost economics is understood as alternative modes of organizing transactions governance structures such as markets, hybrids, firms, and bureaus that minimize transaction costs williamson 1979. This method reduce the cost of new product, guarantee the level of profit. In food cost control, on the other hand, much stress is placed on the various departments or a section of a business. This website includes study notes, research papers, essays, articles and other allied information submitted by visitors like you. A business owner compares the companys actual financial. The activity of maintaining cost as per the established norms is known as cost control. The process of monitoring and regulating the expenditure of funds is know as cost control. In financial accounts, stress is usually placed on the ascertainments of total cost and profit i. The activity of decreasing per unit cost by applying new methods of production in such a way that it does not affect the quality of the product is known as cost reduction. Jan 05, 2020 objectives of cost control to analyze income and expenditure.
According to the study findings on the relationship between cost control and organisation performance, it was evident that there exists a significant and strong positive relationship between cost. Transaction cost theory williamson 1979, 1986 posits that the optimum organizational structure is one that achieves economic efficiency by minimizing the costs of exchange. Cost reduction is the primary focus of every business. Does cost control and cost reduction scheme affect the quality of the product of the company. Elements of cost, components of total cost, cost sheet. Hi guys, i am sharing with you this excellent pdf ebook on managerial economics as per the syllabus of mba and pgdm students. In other words, it means to regulate control the operating costs in a business firm. Basics of managerial economics cost analysis and estimation pathways to higher education 18 shortrun vs. Key topics covered in managerial economics ebook, lecture notes pdf. The meaning of cost of control is to identify and reduce the expenses in business to maximise profit. The following are the main differences between cost control and cost reduction. Managerial economics unit 1 unit 1 meaning and importance of managerial economics structure. Managerial or cost accounting is the discipline concerned with measuring and assigning the costs of delivering services or producing products.
Cost control areas of cost control techniques of cost control. Cost analysis, economic of scale, cost reduction and cost control, capital. If workers complete their work within the specified time cost of labour can be controlled. Inefficient application of cost control and cost reduction techniques leads to a decline in the profit level of an organization, when other factors are constant. Cost control focuses on decreasing the total cost of production while cost reduction focuses on decreasing per unit cost of a product. It also provides useful knowledge for all organizational settings. Unlike cost reduction which is a permanent process. Cost control is the achievement of pre determined targets of costs. The effects of cost management quality on the effectiveness of.
It involves usage of sound supply chain management in production planning minimising the overall production and supply cost. Cost and management accounting615a multiple choice. Besides, costing and cost accounting, the following areas are also covered under cost accountancy. Distributors and wholesalers are in a brutal business. Cost accounting is thus concerned with recording, classifying and summarizing costs for. Cost control and reduction encyclopedia business terms. Further, average costs can be distinguished by type of costs such as average fixed or average variable costs.
Cost accounting helps the business to ascertain the cost of productionservices offered by the organization and also provides valuable information for taking various decisions and also for cost control and cost reduction. Radiology practices need to know the cost of a procedure or service to determine the selling price of a product, bid on contracts, analyze profitability, and facilitate cost control and cost reduction. Capital budgeting is the process of allocating capital funds to alternative investment opportunities. Cost accounting provides information regarding standards and actual. Cost and costing techniques in managerial economics mp birla. As output increases, production costs fall continuously while managerial costs may rise at very large scales of output. Direct labour and manufacturing overhead costs are evaluated in the scope of activity costs. There is no significant impact of effective cost control reduction measures on the growth and profitability of nigerian manufacturing firms. The capital fund allocated to an investment is known. It facilitates management with cost control initiatives, ascertainment of profitability and informed decision making. Examine and evaluate the application of cost control and cost reduction in the organisation performance. As every organization has learned from todays global economic climate, an ongoing commitment to cost reduction and control in both good times and bad is a surefire way to weather inevitable economic turmoil. Based on the findings, it was evident that cost control has a positive impact on.
The theory of cost is a concern of managerial economics. Relevant costs are those costs that are directly traceable to. The application of cost accounting to management planning. Shortrun cost is the cost of production at various production output levels for a specific. The purpose of this course is to apply micro economic concepts and techniques in evaluating business decisions taken by firms. Cost control, reduction and estimation in business. Modern management is becoming increasingly costconscious and is.
Cost control also monitors the performance of strategies, programs, projects and operations to ensure that spending achieves business objectives. Cost and management accounting615a multiple choice questions. The process of cost control will be completed when the specified target is achieved. In the production process, many fixed and variable factors inputs usually capi tal equipments are used. Cost control and cost reduction explanation, difference and.
Due to technological development in all fields, now cost reduction has also come within the ambit of cost accounting. Jan 05, 2020 food cost control it can be defined as guidance and regulation of cost of operations. Scope of managerial economics the main focus in managerial economics is to find an optimal solution to a given managerial problem, the problem may related to production, reduction or control of cost, skyups media. Syllabus mba marketing two years full time programme. Cost control by management means a search for better and more economical ways of completing each operation. Cost reduction is a technique which we used to save the unit cost of the product without compromising its quality. In contrast to financial accounting, management accounting produces relevant information for internal decision making and in general is designed to answer a firms specific operational questions. Cost control does not guarantee quality maintenance, however 100% quality maintenance is assured in case of cost reduction. Total cost is the cost incurred to produce a given level of output in the short run by utilizing both the fixed and the variable factors. The assumption that profit maximization is the main purpose for setting up a business and to achieve this goal, resources would have to be employed. Oct, 2015 cost reduction is not concerned with maintenance of performance according to predetermined targets.
The ratios which reflect managerial efficiency in handling the assets is. The objectives and advantages of cost control hmhub. The two techniques cost control and cost reduction are used by many manufacturing concerns to diminish the cost of production. Management accounting helps the management to conduct the business in a more ef. The janitorial cost per square foot is an efficiency measure or cost control measure. The marginal cost is the change in total cost that arises due to the change in one. Cost control is the process of monitoring cost and performance. Economies of scale, cost control and cost reduction, production function, managerial uses of production function, indifferent curves. The proportion of people working in manual and semiskilled jobs has been. Abstract the adoption of cost control and cost reduction strategies in business organization has become essential in the economy of most business given he. The cost function is a derived function since it is obtained from the production function. Cost control and cost reduction basics, process, methods and techniques of cost reduction programme.
Pdf managerial economics annavaram hari prasad academia. A business enterprise must survive, grow, and prosper. Helps in inventory control facilitates cost reduction. In effect, cost control would mean a reduction in the percentage of costs and, in turn, an increase in the percentage of profits. It is a useful factor in maintaining and growing the earnings of.
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