Determining and justifying the reserves to reduce production costs
One of the most important components of an effective cost management system is systematic and constant search for reserves of cost reduction, justification and development of solutions aimed at a comprehensive reduction of unproductive losses, economical use of the resource potential and increased profit.
The search for reserves to reduce costs is carried out in the directions of the main aspects of financial and economic, organizational, managerial and marketing activities. Reduction in cost can be achieved by:
• choosing a balanced portfolio of orders;
• changes in the structure of commodity output;
• increase in production volumes;
• reduce the overexpenditure of raw materials, fuel and energy and money resources, the norms of their consumption per unit of output, the level of output of byproducts;
• replacing irrational types of raw materials with other, more economical, allowing to increase the efficiency of their use;
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• the use of productive equipment, which allows to reduce fuel and power consumption, repair and maintenance costs;
• reorganization of production management, optimal management of stocks of raw materials, materials.
The hidden factors of cost reduction (the rationale for rational growth rates, the degree of utilization of production capacity, the policy of updating the technical base, etc.) are determined using scientific methods, an extensive information base, and highly skilled management personnel.
Reducing the cost directly depends on increasing labor productivity, reducing costs for materials and reducing overhead costs. In turn, the growth of labor productivity is determined by the increase in the level of mechanization and automation of work, the development of production technology and a number of other factors.
Below are considered the algorithms for calculating the reserves of cost reduction, based on several interrelated influencing factors:
• Cost reduction due to more economical use of material resources and lower prices for raw materials, materials (with a reduction in consumption rates, replacement of suppliers, replacement of nonrational types of raw materials):
where Res <% 5 _{ (} ° ^ & quot;  the reserve of cost reduction due to rm material costs in%;/ reduction factor gh material costs; 1  the price reduction factor of the 1st material resource; c1  weight in % g of material costs in the cost of production.
In Table. 10.25 the example of calculation of a reserve of decrease in the cost price due to rates of the expense and the price is resulted.
Table 10.25
Calculation of the reserve of cost reduction due to consumption rates and prices, %
Metrics 
Reporting year 
Planned decline,% 
Indexes (100  D% reduced)/100 
Cost of commodity output, thousand rubles. 
122,387 

Costs for raw materials and materials, thousand rubles. 
91 045 
1.5 
0.985 
Specific weight of material costs,% 
74.39 

The price of raw materials, materials,% 
0.5 
0.995 

Reserve of cost reduction due to lower consumption rates and reduction of chain,% 
X 
1.48 
X 
Saving money by reducing the cost of production, thousand rubles. 
X 
1814.07 
X 
If the planned consumption of raw materials and materials is to be reduced by 1.5% and the price is reduced by 0.5%, the total cost of goods should be reduced by 1.48% ((0.985 x 0.995) x 74.39) . This, in turn, will lead to a reduction in the cost of 1814.07 thousand rubles. 
• Cost reduction due to a reduction in labor costs with an increase in labor productivity:
where Res1% Sd is the reserve of cost reduction as a result of growth in pile productivity in %; 1/1  ratio of indexes of wages and labor productivity; с1  The specific weight of labor costs in the cost of marketable products.
If labor productivity (output per worker) grows faster than wages, then labor costs in one ruble of output are reduced;
• Cost reduction due to increased production volume. Constant costs (management costs) do not change with the increase in output, but they decrease in unit of output, lowering the prime cost:
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Get your great paper nowwhere Res I is the reserve of cost reduction due to
reducing fixed costs per unit of output with an increase in output in %; 1  the index of increase in the volume of production;  the proportion of fixed costs in the cost of marketable products.
In gable. 10.26 the example of calculation of a reserve of decrease in the cost price due to growth of labor productivity and increase in volume of production is given.
Table 10.26
Calculation of the reserve of cost reduction due to labor productivity and increase in output
Metrics 
r, 
Planned changes,% 
Index change 

Cost Savings Reserve 

% 
ths. rubles. 

A 
1 
2 
3 
4 
5 
Output, thousand rubles 
130 095 
5.5 
1.055 
X 

Material costs, thousand rubles. 
91 045 
3 
0.97 
2.23 
2731.35 
Specific weight in the cost of commodity output,% 
74.4 
X 
X 
X 
X 
End of the table. 10.26
Metrics 
l 
Planned changes,% 
Index change 

Cost Savings Reserve 

% 
ths. rubles. 

Labor costs, thousand rubles. 
21 636 
4.5 
1,045 
0.38 
465.94 
Specific weight in the cost of commodity output,% 
17.7 
X 
X 
X 
X 
Labor productivity, rubles. 
X 
6.8 
1.068 
X 

Constant costs, thousand rubles. 
16,608 
X 
X 
0.7 
865.82 
Specific weight in the cost of commodity output,% 
13.6 
X 
X 
X 
X 
Cost of commodity output, thousand rubles. 
122,387 
X 
X 
X 
4063.11 
With the planned indicators of outstripping growth in labor productivity (1,068) compared to wages (1,045), the enterprise will be able to reduce the prime cost by 0.38%, or 465.94 thousand rubles. Reduction of consumption rates for materials by 3% will entail a decrease in the cost of production by 2.23%, or 2731.35 thousand rubles. With the constant value of fixed costs (16,608 thousand rubles), with the increase in production by 5.5%, the cost of production due to the reduction of fixed costs per unit of output will decrease by 0.7%, or 65.82 thousand rubles. The amount of all reserves will be 4063.11 thousand rubles.
When calculating the savings for individual types of production resources due to the introduction of organizational and technical measures, new technologies can be used previously considered economic and mathematical models. The planned reduction in costs must be represented by the difference between their magnitude before the implementation of the event and after implementation:
• saving labor costs (Res 4 (/):
where UD.,  the labor of products before the introduction; UD.,  labor intensity of products after introduction;  The planned level of average hourly wage; <2o, _{ l })  the number of products planned for release.
The amount of savings will increase by the percentage of deductions from the wage fund included in the cost of production;
• reserve of reduction of material costs (Rez 4 M):
where Mdd. _{ 2 }. MeD consumption of materials per unit of production, respectively, after and before the implementation of activities; Р (пл)  planned (forecast) prices for materials;
• The reserve of reduction of expenses for maintenance of fixed assets due to sale, transfer to longterm lease and writeoff of unnecessary, unnecessary, unused machines and equipment is determined by multiplying their initial cost by the depreciation rate:
Reserves of cost reduction are established for each item of expenditure through specific activities: the introduction of new more advanced technology and production technology, better organization of work, etc.
Additional costs for the development of reserves are calculated separately for each of its types. This is mainly the salary for additional output, the consumption of raw materials, materials, energy and other variable costs, which vary in proportion to the volume of production.
In order to determine the additional costs associated with increasing production, the value of the production reserve of the ith kind is multiplied by the actual level of specific variable costs of the reporting period:
When calculating the aggregate reserves of cost reduction due to both cost reduction and increase in output, the following formula can be used:
where  5,  respectively, the possible (predicted) and the actual level of the cost of the product; udop _ additional costs needed to develop reserves to increase output.
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