Cost Development System means in which each and every element of cost incurred at each stage of production through manpower, machine, material analysis and records will have to be kept in written. The process flow chart of each and every item produced in the company will have to be seen and accordingly records of each and every process of operation through man, machine and material will be kept. On that basis labor hour rate, machine hour rate, material consumption details will have to be calculated accordingly cost incurred at each process of operation will be calculated. So in this way total cost of all of the operations incurred for a component will be calculated on the basis of monthly production of components and expenses incurred at each stage of production and also overheads will have to be allocated and apportioned to components produced during the period. So sale price decision will be taken accordingly and if customer will ready to pay fewer amounts than total cost actually incurred to manufacture the component then the following are advises to the manufacturers to decide the sell price and take various steps to reduce the cost at different stages if customer will ready pay less than what sale price comes to owner. We are also recognized among the most reliable providers of Cost Development Services in India and various leading industries are availing the benefits of Cost-Effective Development System.
- Normal Cost Price Decision: Sale Price must be equal to Variable Cost + Fixed Cost + Profit.
- If customer will ready to pay less than normal cost price then sale price decision should be on the basis of total cost price = variable cost + fixed cost so that customer will not go from hands or sale order will not be left. And take various steps to reduce and control cost at various stages of production through value engineering , reduce raw material consumption and look suppliers from which material will be get at lower prices , reduce cycle time taken by the labor and machine for produced the items.
- If customer will ready to pay less than total cost price then sale price decision should be on the basis of marginal cost price/variable cost price = variable cost only. Cost so that customer will not go from hands or sale order will not be left. and take various steps to reduce and control cost at various stages of production through value engineering , reduce raw material consumption and look suppliers from which material will be get at lower rate, reduce cycle time taken by the labor and machine for produced the items.
- If number of items sold to same customer then out of that some items may be sold below variable cost only if owner will in profit by the all of items from same customer. So that customer will not go from hands or sale order will not be left. and take various steps to reduce and control cost at various stages of production through value engineering , reduce raw material consumption and look suppliers from which material will be get at lower prices , reduce cycle time taken by the labor and machine for produced the items.
Changing business environment is changing rapidly because of multifaceted changes taking place around the world. The impact of such changes has led to worldwide competition for business as shown below :
- Phase of Business environment Decisive Factors
- MONOPLY - Quantity
- QUALITY - Quantity +Quality
- COMPETITION - Quantity +Quality +Price
Key Cost Reduction Areas : - MATERIAL COSTS
- CONVERSION COSTS
- OVERHEADS COSTS
- SUSTAINABLE COMPETITIVE EDGE
When we focus on competition, we have to target sustainable competitive edge i.e. competitive advantage over longer period of time. Total cost management plays significant role to attain this objective because pricing is a very important factor. Gone are the days when the price was fixed by cost plus approach. Now, the prices are fixed by the market and after deducting targeted profit from the market determined price, one has to focus on costs to remain them within the residual value.
Earlier was : Selling Price Approach i.e. sale price= cost + profit
Now Transformed into : Cost Approach i.e. Cost= Market Determined sale price Targeted profit The market perception about cost Traditionally, the cost is considered as sum of expenses incurred. Now, cost is not what we are willing to pay and the competitors allow.