Every business objective is to make profits and reduce costs as much as possible. Most business owners believe that to realize high profits, they need to increase their sales. However, for the sales to increase there must be corresponding increase in the costs since there will be increased amount of work. Increased costs however can be curtailed. Another way that the costs can be reduced is by controlling them.
Controlling variable costs
Variable costs change with the number of products that are produced for sale. Example of these costs ...view middle of the document...
Therefore, it will depend on the circumstances that the business is facing. Employee salaries are also some of the variable costs that can be regulated to ensure that variable costs do not escalate. In adjusting the salaries, various factors need to be considered to ensure that, the process does not impact on the level of commitment and productivity of the employees. The variable costs can also be controlled through continuous monitoring of how the business is operating. Through monitoring then appropriate decisions may be taken to ensure that the inventory is well managed and controlled to impact on the level of profits that the business accrues.
Controlling fixed production overhead costs
Controlling fixed production overhead cost is also important in ensuring that the business achieves its objective of accruing profits. Fixed production overheads are costs that do not vary as a result of changes in activity. These costs are required for the business to operate smoothly. Therefore, management have the responsibility of ensuring that they generate enough amount of contribution margin through the sale of products and service for them to offset the costs of fixed production overhead costs. These costs are related to the production and they include factory rent, utilities, normal scrap, production supervisory salaries, deprecation on production equipment and insurance of production equipment, inventory and facilities among others.
Fixed production overheads costs by their nature are fixed and only fluctuate after a long duration of time. Therefore, for such cost to be controlled, they require proper management skills. The manager of a company should have adequate skills and knowledge to ensure that these costs are well managed. This can be achieved through adapting to best practices in management, standardization of compensation plans and ensuring that there is...