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Cost Management Strategies

Cost Management

Introduction

In the modern era, there exist high amount of competition and rivalry among business enterprise and this leads to situation of decline in profit margin and market share. However, it is required to involve appropriate strategies into operations so that firm can able to gain high amount of benefits from the market place. This is being observed that implementation of competitive strategies into operations certainly adds more cost to business which again makes an impact over the firm (Fairchild, 2002). With this discussion, cost can be understood as an amount that is required to pay for the purpose of attaining something in return. In business enterprise, it is a monetary valuation of different elements such as efforts, resources, materials, time, utilities consumed, amount of risk incurred into it, opportunities that foregone in manufacturing or delivery of goods and services, etc (Phillips, 2000). In this context, it is required to manage every sort of cost so that better results can be attained.

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Importance of Costs in the Business of the Firms

Cost is one of the inevitable elements of business firm that cannot be neglected but can be managed up to a great extent so that better and effectual results can be attained from it. This is being observed that cost certainly aids in gaining more of revenue but same is required to control for attaining optimum outcome along with boosting of overall efficiency of the firm (Brigham and Ehrhardt, 2008). Considering this, there possess various importance of costs in business enterprises that assists in running business effectively. These are as follows:

Decisions making:

Cost is one of the key elements that certainly assist in taking decision on different grounds. This is being proved that cost directly makes an impact over the business firm therefore it helps in taking decisions whether to involve into certain set of actions or not (Burns, Hopper and Yazdifar, 2004). Additionally, every strategy or tactics possess certain amount of cost whether economical or resource based and on one the basis of cost only, it feasibility got evaluated and hence ultimate decisions are being taken into account whether to implement those or not. 

Strategic Options:

In addition to it, on the basis of cost only firm able to evaluate strategic options that are available to them so that better results can be attained from it. It acts as a base from which feasibility of different got assessed and hence one can be choose from it (Sisaye and Birnberg, 2010). With the help of it, firm can able to boost their profit margin that ultimately leads to attaining an edge over their rivals. Beside this, cost also supports management to make their strategy that much effective from which accurate results can be attained from it.

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Alteration of Strategy:

Further, by identifying the areas that incurring high amount of cost, strategy or steps can be taken into account from which cost can be minimized and hence overall efficiency of the firm can be enhanced up to a great extent (Hopwood and McKeown, 2003). With this, objectives of the firm can be attained in a desired manner along with gaining competency.

Identification of areas or process that needs to be control:

Cost is associated to almost each and every operations or area of business enterprise. With this scenario, it becomes easier to review every process and operations of business unit so that area can be identified that incurring huge cost. With this, identification of areas can be taken into account so that control measures can be entailed in this regard with a motive to boost overall competency of the firm (Zawawi and Hoque, 2010). Moreover, by entailing control measures, positive impact can be seen over the profit margin of the firm that certainly leads to boosting of their share in market.

Methods of Managing Different sort of Costs in Business

In any of the business enterprise, there are basically two sort of cost namely variable cost and fixed costs. In this regard, variable cost can be understood as a corporate expenses cost that certainly changes with the production output of Management Assignment.

Strategic Sourcing process:

It is being viewed that material cost is one of the major contributor in variable cost and hence it is required to manage this cost so that overall cost can be decreased up to a certain extent. In this context, practice of strategic sourcing process essentially aids in meeting out with the set objectives. Under this, source of procuring material can be fixed on set price so that benefits can be gained from it over a period of time (Vanderbeck, 2012). This is one of the key methods that aid management in getting rid of inflation and seasonal hike in the prices of material.

Effective Supply management:

Another set of practice for managing variable cost is related to supply chain management and this possess a key role in supplying material at a desired time frame (Kate-Riin Kont, 2012). Variable cost also involves exposes that are being incurred in warehousing activity and hence to get rid of this expenditure, methods of effective supply chain management can be taken into account. With this, material can be procured at certain period only and same will be available through effective supply chain management.

Just In time:

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This is another set of methods that can help in reducing cost that are associated with variable cost. Under this, materials are being produced only at the time when its need arises and hence no stock of same is being stored in advance. With this tactics, firm can able to reduce their cost up to certain extent and hence able to gain their operational efficiency after a particular amount of time frame (Atrill, 2009). This also helps in getting rid of scenario like wastage of material and also safeguard from

Conclusion

The surfacing of immensely automated machines that substituted direct labor with support labor, led to a downfall in the precision of direct labor as a predictor of indirect costs. This decline first resulted in the emergence of machine hour based system of costing. However, both machine hour and labor based costing systems, depend upon unit level cost drivers and can offer sufficient insights to managers regarding the costs of their products only in a much uncomplicated manufacturing systems. As rivalry faced by companies grew, levels of profits and revenues began declining and it became more crucial for the company’s costing system to report precise product costs.

References

  • Atrill, P., (2009). Financial Management for Decision Makers. 5th ed. FT Prentice Hall.
  • Bae, C. S., Park, C. J. B. and Wagner, T., (2005). Capital asset management process: the case of Hose & Fittings Corporation. International Journal of Managerial Finance. 1(3). pp.204 – 220.
  • Bennouna, K., (2010). Improved capital budgeting decision making: evidence from Canada. Emerald Group Publishing Limited. 48(2). pp.225-247.
  • Brigham, F. E. and Ehrhardt, C. M., (2008). Financial Management: Theory and Practice. Cengage Learning.
 
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