Question

how the company can overcome preventive cost?

Answer 1

Company can overcome preventive cost by introducing Cost Reduction programme.

Cost reduction is defined as -

a) acheivement of real and permanent reduction

b) in the unit cost of goods manudactured or services rendered

c) without impairing their suitability for its intended use or diminishing its quality

The 3 aspect of Cost reduction is that

i) There will be saving in unit cost

ii) Such saving is of permanent nature

iii) The utility and quality of goods and services remains unaffected, if not improved.

The Cost Reduction programme will help in reduction of unit cost by an increase in productivity i.e increase in yield or rate of output or can help in reduction of expenditure in respect of given volume of output.

Such programme will be of permanent nature, and will increase products quality by continuous examination of critical processes . The emphasis of reduction to acheive prevention of cost permanently shall be present cost and largely future costs.

Following procedures can be performed in such technique:-

a) Identification of area of high cost

b) Detection of avenues of wastages-normal & abnormal

c) Determination of remedies to avoid high cost and wastages

d) Establishing priorities in cost reduction

Such programme is periodically reviewed after its implementation through regular reporting and requires coordination between various departments