Introduction to Cost Reduction
Cost reduction may be described as a success of real and permanent reduction in the unit cost of goods created or services rendered with no impairing their quality or functional suitability.
The above definition brings out the following as the necessary features of cost reduction:
(i) Cost reduction includes genuine savings in cost of production or giving services. This can be acquired either by research or removing wasteful expenditure. Cost reduction acquired as a price agreements, result of lower material prices, reduction in Government duties or taxes or windfall is not be taken as real and hence it cannot be known as cost reduction.
(ii) Cost reduction includes permanent reduction in the costs. Temporary reduction in cost is not taken like cost reduction.
(iii) Cost reduction should not influence the quality or utility of the services or goods. Other words, goods or services should carry on being appropriate for the intended use even after cost reduction.
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