Study Notes management accounting acca f2

APPROACHES OF COST REDUCTION 
There are two approaches used to reduce cost. 
➢
Crash programme to cut spending levels
▪ Immediate plan to reduce spending without any proper planning like: 
✓
Some projects might be abandoned 
✓
Deferred some expenses 
✓
Stop new recruitments
✓
Redundant unnecessary employees. 
▪ It might create a panic situation
▪ Poor planning may lead to poor efficiency
▪ May be cost reduced in short term but increase in long term. 
▪ May be useful in time of crisis. 
➢
Planned Programme to reduce cost
▪ It involves continual assessments of organization products, methods, services and so on
 
▪ It is a planned approach
 
▪ It reduces the cost for long term
 
 
Problems in introducing cost reduction programmes
▪ Resistance from employees 
▪ To overcome this problem, proper communicate the programme through some campaign 
▪ If the programme introduced in one area may lead extra cost in other area 
▪ Not properly planned programme create panic situation 
Managers’ responsibilities in reducing cost
▪ They should have a positive approach 
▪ They should do cost benefit analysis 

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F2 Management Accounting
Page 104 of 147 
▪ Investigate area of potential cost reduction and identify unnecessary costs 
▪ Cost reduction should be planned, agreed, implemented and monitored by managers 
 
Scope of cost reduction
▪ Cost reduction should be applied to whole organization through campaigns 
▪ Cost reduction campaigns should have a long term aim as well as short term objectives 
▪ In short term only variable cost can reduce easily. Fixed cost remains unchanged like rent 
▪ Some fixed costs can be avoided in short term like advertising or sales promotions. These are 
called