Cost control and cost reduction in managerial economics book

Example setter of cost reduction program should be top management employee. Thus, cost reduction is confined to savings in the cost of manufacture, administration, distribution and selling by eliminating wasteful and unnecessary elements from the product design and from the. Features of cost reduction cost reduction is not concerned with setting targets and standards. If you want to know cost per unit, average cost is what you need to know. In effect, cost control would mean a reduction in the percentage of costs and, in turn, an increase in the percentage of profits. Objectives of cost control to analyze income and expenditure. Oct 01, 2019 at this juncture, it would be desirable to know the difference between cost control and cost reduction.

Managerial economics answers to some sample exam questions. There are various concepts of cost that a firm considers relevant under. Airlines and their focus on cost control and productivity 122 strategy requires that a firm choos es attributes in which to differe ntiate itself that are different from its rival. Production and cost 229 7 production economics 230 7a maximization of production output subject to a cost constraint 265 7b production economics of renewable and exhaustible natural resources 267 8 cost analysis 275 8a longrun costs with a cobbdouglas production function 301 9 applications of cost theory 305 part iv pricing and output decisions. The chief topicscovered under cost and production analysis are. Pdf cost control and its impact on the survival of nigeria.

Managerial economics ebook, lecture notes pdf download for. Cost reduction is the final result in the cost control process. Based on the findings, it was evident that cost control has a positive impact on organizational performance and also. Cost control areas of cost control techniques of cost. Here, costs include imputed value of the entrepreneurs own resources and services, as well as the salary of the ownermanager. Cost control is simply the prevention of waste within the existing environment. Cost and time control inhibiting factors and mitigating.

Managerial economics by kate and young, very easy to understand. Otim, nakacwa and kyakula 367 cost control techniques used on building construction sites in uganda george otim1, fiona nakacwa2, michael kyakula3 1phd student, faculty of technology, makerere university, p. In fact, cost control is an essential element for the successful operation of a business. Cost control implies controlling the costs at the given level. We study some important concepts of costs, and traditional and modern theories of cost. Pdf airlines and their focus on cost control and productivity. 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. Inhibiting factors and mitigating measures in practice. However, linear cost volumeprofit analysis has its limitations. Effect of cost control and cost reduction techniques in.

Cost control is a process which focuses on controlling the total cost through competitive analysis. 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. These changes dont appear when an economy works at full speed ahead. Linear costvolumeprofit analysis has a weakness in what it implies about sales possibilitiesfor the firm. Jan 02, 20 cost reduction in managerial economics the institute of cost and works accounts of london has defined cost reduction as the achievement of real and permanent reductions in the unit costs of goods manufactured or services rendered without impairing their suitability for the use intended. Success of any cost reduction program may lie in only continuous improvement of efforts. It facilitates the process of cost control, cost reduction and cost management. The course in managerial economics attempts to build a strong theoretical foundation for management students. Managerial economics applies microeconomic theories and techniques to management decisions. Oct 09, 2018 it is merely based on assumptions and therefore considered to be less accurate to determine the actual cost. Accounting costs are the costs recorded for the purpose of preparing the balance sheet and profit and ton statements to meet the legal, financial and tax purpose of the company. Managerial economics applies the principles of economics to analyze business and government decisions. Costvolumeprofit analysis in managerial economics tutorial.

Difference between cost control and cost reduction with. Cost control techniques used on building construction. In financial accounts, stress is usually placed on the ascertainments of total cost and profit i. In other words, it means to regulate control the operating costs in a business firm. What is the theory of cost control and reduction in. It is a practice which works to maintain the actual cost in agreement with the established norms. Feb 03, 2020 cost control is the practice of identifying and reducing business expenses to increase profits, and it starts with the budgeting process.

Cost and costing techniques in managerial economics informatics. This is contrasted with a planned economy, where investment and production. The prescription for sound managerial decisions involves six steps 1. Cost control is the process of monitoring cost and performance. Cost reduction program is a continuous activity that cannot be treated as one time or short term activity. Department of economics, nnamdi azikiwe university awka nigeria, pp. Businesses often expand to exploit these economies. Mba cost management pdf notes cm notes smartzworld. Pdf the study aimed at establishing the effect of cost control on organisation performance with a.

Professor salvatore has published over 100 articles in leading economics journals and has given more than 150 lectures around the world and was visiting professor at the universities. In other words, it means to regulatecontrol the operating costs in a business firm. This environment is made up of agreed operating methods for which standards have been developed. Cost accounting is being widely applied by the production units to modify the process and maximise the profit. One of the primary reasons costplus pricing is so popular is its simplicity. Jul 03, 2012 cost reduction and control best practices provides financial manages with nononsense, balanced, and practical strategies that are being targeted and used nationwide for controlling costs by thousands of companies in areas such as human resources, compensation, benefits, purchasing, outsourcing, use of consultants, taxes, and exports. Cost reduction program should be real and permanent. The students are expected to study and analyses the dynamics of managerial decision making through this.

The process of identifying and eliminating unnecessary costs to improve the profitability of a business is know as cost reduction. Cost reduction in managerial economics mba knowledge base. Cost reduction refers to the real and permanent reduction in the unit cost of goods manufactured or services rendered without affecting the use intended. Cost accounting provides the detailed cost information that management needs to control current operations and plan for the future. Nov 08, 2018 marginal cost is the additional cost incurred to produce and additional unit of output or it is the cost of the marginal unit produced. The course is mainly analytical in nature and focuses on clarifying fundamental concepts from microeconomic viewpoint.

It is more limited in scope as compared to microeconomics. Pdf cost control and its impact on the survival of nigeria firms. Cost control by management means a search for better and more economical ways of completing each operation. Power system3 quick revision pdf notes, book, ebook for electrical engineering free. Definition, nature and scope of managerial economics, managerial economics and microeconomic and macroeconomics. Oct 06, 2018 cost accountancy is a systematic process of applying the costing, as well as cost accounting methods in business activities. Costplus pricing means that you determine price by starting with the goods cost and then adding a fixed percentage or amount to that cost. Cost reduction is thus stated as the real and permanent reduction in unit costs of goods or services rendered without imparting their suitability for the intended use. A business owner compares actual results to the budget. Cost classification has simplified the work of the management, accountants, economists, researchers and many others.

The accent is an adhering to the predetermined standard and the emphasis is on ensuring that the cost does not exceed the said. Sep 17, 2017 cost control is the process of monitoring cost and performance. The marginal cost of production is constant and equal to one. Managerial economics also employs statistical methods forexperimental.

It can be done with the help of techniques called budgetary control, standard costing, material control, labour control and overheads. The institute of cost and works accounts of london has defined cost reduction as the achievement of real and permanent reductions in the unit costs of goods manufactured or services rendered without impairing their suitability for the use intended. Macroeconomics deals with the performance, structure, and behavior of an economy as a whole. Cost control also monitors the performance of strategies, programs, projects and operations to ensure that spending achieves business objectives. Reduction in per unit cost of production can be achieved broadly in two ways. Ordinarily, costs refer to the money expenses incurred by a firm in the production process. The best ways for a financial manager to save money wiley best practices book online at best prices in india on. It is also useful for pricing, cost control, and other financial decisions. The objectives and advantages of cost control hmhub. Earlier, in chapter 4 cost and production, we discussed the concepts of economies of scale cost per unit decreases as volume increases and economies of scope costs per unit of different goods can be reduced by producing multiple products using the same production resources. Cost control is a technique which provides the necessary information to the management that actual costs are aligned with the budgeted costs or. Pricing decisions, policies and practicespricing is a very important area of managerial economics.

Costvolumeprofit analysis helps explain relations among volume, prices, and costs. Managerial economics cost control and cost reduction. As a manager you frequently want to know the cost per unit associated with producing a good, because you can use this information to establish your products price and determine your profit per unit. A cost center is a department within an organization that does not directly add to profit but still costs the organization money to operate. This doesnt necessarily involve cost reduction but is a process of confirming that spending conforms to plans, policies and regulations. Cost concepts and classifications cost output relationships economics of scale production functions cost control. Construction management and economics, 28 5, 509 526. Some of these studies include siyanbola and raji, 20, olagunju, et al. There are empirical studies in the literature on cost control and reduction with different findings. Cost control and cost reduction strategies as a managerial technique provide a. Average total cost, average fixed cost, average variable cost, and marginal cost 238 the functional form of the total cost function 241 mathematical relationship between atc and mc 243 learning curve effect 247 longrun cost 250 economies of scale 251.

The mba cost management notes pdf cm pdf notes book starts with the topics covering introduction to cost management, classification and collection, marginal costing, budgetary control, demerits of traditional costing, cost audit, reporting to management etc. How to use costplus pricing in managerial economics dummies. May 23, 2012 the chief topicscovered under cost and production analysis are. Cost the relationship between production and cost 235 shortrun cost 236 key relationships. In food cost control, on the other hand, much stress is placed on the various departments or a section of a business. The process of monitoring and regulating the expenditure of funds is know as cost control. Cost control, reduction and estimation in business. Managerial economics cost control and cost reduction 2. How to determine average costs in managerial economics dummies. Often information on marginal revenue and marginal cost is difficult to obtain with precision, making it impossible to.