Solutions to Costing Problems

Solutions to Costing Problems

Overcoming High Overheads

  • Businesses can reduce overhead costs by downsizing, renegotiating lease agreements, or switching to cheaper suppliers.
  • The implementation of energy efficient solutions can result in significant cost savings in the long run, despite the high initial outlay.
  • Outsourcing non-core processes can help businesses focus on their core operations and potentially lower overall overhead expenses.

Efficient Production Methods

  • Adopting lean manufacturing approaches helps to eliminate waste, improve productivity, and consequently decrease costs.
  • Factory automation with modern technologies and machinery can lead to higher efficiency and lower production costs.
  • Utilising Just-In-Time (JIT) inventory management reduces storage costs and eliminates waste from overproduction.

Better Budgeting and Forecasting

  • Implementing a zero-based budgeting approach ensures all costs are justified for each new period, reducing unnecessary expenditures.
  • Businesses can reforecast their budgets regularly based on current economic conditions and business performance to avoid unexpected costs.
  • Using flexible budgets enables organisations to adjust their expenditure in response to variations in activity levels, providing more accurate cost predictions.

Improving Cost Allocation

  • The use of Activity Based Costing (ABC) ensures that the indirect costs are allocated more accurately, reflecting their consumption by different products or services.
  • Direct cost allocation ensures costs are directly attributed to specific products or services, enabling more precise costing and pricing.

Enhancing Employee Productivity

  • Employee productivity can be improved through adequate training and development, which in turn can lower costs.
  • Businesses can establish incentive schemes to motivate employees, thus driving higher productivity and lower workforce-related costs.
  • Implementation of employee wellbeing programmes can reduce staff turnover and associated recruitment and training costs.

Regular Cost Reviews

  • Regular cost audits can identify areas where costs are exceeding budgets or where savings can be made.
  • Regular reviews of supplier contracts ensures the business is getting the best deal and can highlight opportunities for renegotiation or supplier switching.
  • Comparing actual costs against standard or budgeted costs helps to identify costing inaccuracies or inefficiencies.