COST CONTROL AND COST REDUCTION IN

SANVIJAY ROLLING AND ENGINEERING

LTD

Chapter - 1
  INTRODUCTION TO COST CONTROL AND COST REDUCTION

In production, research, retail, and accounting, a cost is the value of money that has been used up to
produce something or deliver a service, and hence is not available for use anymore. In business, the
cost may be one of acquisition, in which case the amount of money expended to acquire it is counted
as cost. In this case, money is the input that is gone in order to acquire the thing. This acquisition cost
may be the sum of the cost of production as incurred by the original producer, and further costs of
transaction as incurred by the acquirer over and above the price paid to the producer. Usually, the
price also includes a mark-up for profit over the cost of production. The literal meaning of cost is the
amount paid or required in payment or purchase or for the production or upkeep of something it is an
amount of resources to given up in exchange of some goods and services. cost is generally measured
in monetary terms. The cost does not mean same thing under all circumstances. cost is always
undertrained with reference to some object such as material, labour , job , process etc. Business costs
include all the expenses which are incurred to carry our business. The concept of business costs is
similar to the actual or real costs. Business costs “include all the payments and contractual obligations
made by the firm together with the book cost of depreciation on plant and equipment”

 COST CONTROL
Cost control is the practice of managing and /or reducing business expenses. Cost control
starts by the business identifying what their cost are and evaluate whether those cost are reasonablean
affordable, thereafter if necessary, they can look for ways to cut costs through methods such as cutting
back, moving to a less expensive plan or changing services providers. To be profitable companies
must not only earn revenues, but also control costs. If the costs are too high, profit margin will be low
making it difficult for a company to succeed against its competitors.
Cost control in an integral part of any business venture. No firm will stay in the business if it does not
employ prudent means of checking its costs by ensuring that they don‘t over surpass the estimated
costs projections. If costs are not checked properly the outcome can be negative to smooth running of
the business. Effective control depends upon allocation responsibility to competent manager and
supervisors for each activity or functions, providing them with operating statement on time, with
details of the standard, actual expenses and the various, together with recommendation. Cost Control
Cost control is concerned with an element of marginal cost which involves the determination of unit
cost, measurement and correction of the performance of subordinates to make sure that the objective
of the enterprises and the means to obtain them are accomplished effectively and economically Cost
control is the regulation of cost of operating a business and is concerned with keeping costs within
acceptable limits. These will usually be specified as a standard cost or target cost limits in formal
operational plan
COST REDUCTION

The process of looking for, finding and removing unwarranted expenses from a business to increase
profits without having a negative impact on product quality. Many business managers will engage in
periodic cost reduction drives in order to make their company's operation more efficient and to boost
profits.

Cost reduction exercises are planned campaigns to cut the expenditure. It is a continuous process with
the object of getting a more or less permanent benefit. Cost reduction should not confuse with Cost
Control. Cost Control is the regulation of costs of operating a business is concerned with keeping
expenditure within acceptable limits. The major assumption in cost Control is that unless costs exceed
the budget or standard by an excessive amount the control of cost is satisfactory. Cost Control is a
routine exercise, which almost concurrently carried out for attainment of operational efficiency. Cost
Reduction brings real and preventive savings by continuous and planned research.
 Chapter – 2

 OBJECTIVES

 To understand the basic concept of Cost, Cost Control, and Cost Reduction.
 To establish the effect of the cost control practices on the profitability to the organization

• To provide the material frame work of cost and Cost Control Analysis

• To describe the profit of the organization as a backdrop for undertaking a study of Cost Benefit
Analysis

. • To analyze the cost system in practice in Hyundai Motors India Limited (HMIL) with particular
reference to their objectives and phases of organizational and re-appropriation.

 Understand the basic concept of Cost, Cost Control, and Cost Reduction.
 To determine the relationship between effective cost reduction measures and profit
performance of indian manufacturing firms.
 Identify the role of costing as an instrument for expressing company’s policy or programme.
 To ascertain the accounting systems which are designed to control costs.
 Appraise various cost control techniques and its impact on Nigeria manufacturing firm.
 Investigate whether cost control and reduction can be used as competitive strategy for
survival tools in Nigeria business industry.
 Ascertain the effect of adjusting the cost of an organization on the profitability of
manufacturing company.

To understand the objective of cost control. 

To understand the requirements needed to ensure an effective cost control system.

 To examine cost control techniques that are involved in the cost control process.

 To determine the effects of implementing weak cost control techniques

 Chapter – 3

 SCOPE OF THE STUDY

The study is concerned with cost control and cost reduction strategies as a tool solving business
economic problems. Considering the difficulty both in expense and time of conducting this research,
only SANVIJAY ROLLING & ENGINEERING LTD

The strategic areas for a Cost reduction programme may be manifold. The following are a few
examples of critical areas of application of cost reduction techniques and methods in a manufacturing
company.

The following are the scope of study


Since it will not be possible to conduct a micro level study of all type industries in Andhra
Pradesh, the study is restricted to Hyundai Motors India Limited (HMIL)only.
  COMPANY PROFILE

General profile

1.1 Name of the borrower : Sanvijay Rolling & Engineering Limited (SREL)
PAN NO. AACCS0217J
1.2 Constitution : Limited Company (Closely Held, Unlisted)
1.3 Date of incorporation : 1987
1.4 Sector / (public / private/ jt.) : Private
1.5 Group / House : Sanvijay (Not Recognised)
1.6 Nature of industry / activity : Manufacture of :
1] Structural Steel Long Products Of Mild Steel,
High Tensile Steel And Closed Chemistry Steel To
Be Used Mainly In Transmission, Line Tower (Tlt)
For Power & Telecommunication Engineering
Projects, Infrastructure Projects , And Housing Etc ,
And
2] Manufacturing Of Steel Billets O Different
Chemistry (both Ms & Alloy Grade)
1.7 Location :
Regd. Office : 9, Imamwada Road, Nagpur.
Controlling office : 9, Imamwada Road, Nagpur.
Branch office : Shop no. 312/ A, shyam square , pandri, Raipur.
: 1] Unit 1 , Plot Nos. B-203, B- 204 , B-205, And B-
factory (existing) 206 In The BUTIBORI INDUSTRIAL AREA
DISTRICT – NAGPUR.
2] Unit 2 , Plot No. B-202, In The BUTIBORI
INDUSTRIAL AREA, DISTRICT- NAGPUR
3] Unit 3, Plot No. S-88/1 & S- 88/2, In The Hingna
Industrial Area District – Nagpur .
4] Unit 4, Plot No. Plot No. -6 In The Hingna
Industrial Area District- Nagpur
5] Unit 5 , Plot No. -16, In The Industrial Area
District – Nagpur.
6] Unit 6, Plot No. 41 & 43 In The Hingna Industrial
Area District – Nagpur

Directors (as on 31 . 12. 2016 )

Name Age Designation DIN % Share Other directorship/

holding partnerships
Shri Sanjay Agrawal 50 Director 00308722 19.50 Director :
Sunrise Structural &
Engineering Pvt.
Ltd
Grace industries
limited.
Proprietorship
Prakash Traders
Shri Ajay Agrawal 36 Director 00084840 19.03 Director :
 Sunrise Structural &
Engineering Pvt.
Ltd
Grace industries ltd
Shri Suyash Bajoria 21 Director 06805605 -
Shri Jignesh kurani 29 Director 06905130 -
Smt Kavita Agrawal 49 Director 00085004 19.50 -

Default Details :

 The company and its directors has not defaulted in payments of interest and loan amount in any bank/
financial institution. Its name is not appearing in any list of the RBI

Asset classification Standard

External credit rating CARE BBB+ or long term loan, carrying

By CARE moderate degree of safety or timely servicing of
Debt with moderate credit risk.
CARE A 3 + or short term facilities carrying
moderate degree of safety.
(As per CARE Rating dated 31.3.2016, valid upto
31.3.2017)

 Brief history

Establishment : Sanvijay rolling & engineering limited (SREL) is a public ltd company (closely held
by promoters) it is into manufacturing o along steel product such as angles , channels , beams etc. it
manufactures more than 200 types o section in various size range wise. It is only company in India
which manufactures all kind of long steel product required or transmission tower. Company has very
good presence in manufacturing o structural steel to be used mainly in TLT or power, infrastructure
and trading o steel. It also has steel billets manufacturing facility at butibori, Nagpur. It is able to
manufacture steel billets of chemistry and alloy grade also.

Sanvijay is promoted by Late Shri. Puranlalji Agrawal it is controlled and managed by his two sons
Shri Sanjay Agrawal director and Shri Ajay Agrawal director. Directors are assisted by team and
professionals.

Group has also interest in steel trading (prakash traders pvt ltd.) TLT manufacturing sunrise structural
pt. ltd.), sponge iron and power generation activity (grace industries limited.) TLT manufacturing,
fabrication and galvanizing activity (Sanvijay infrastructure Pvt. Ltd) steel trading and activities in
sunrise structural pt. ltd. is minimal. Company is concentrating more on activities of SREL, Grace
Industries ltd, and newly commissioned tower manufacturing company Sanvijay infrastructures pvt.
ltd. (SPIL)

 OWNERSHIP :

SREL is closely held public limited company 92.31% of total shares are held by promoters and their
family members and balance 7.69% are held by friend and relatives.

 BUSINESS :
 Company manufactures long steel structural such as Angles, channels, and beams & flats etc... Of
different size, length, and dimensions.

Products are made from MS Billets, HT Billets and controlled chemistry Billets. TATA , SAIL,
RINL, JINDAL , M/S Prakash Ispat industries , adhunik Steel , Bhushan Steel etc.. Are major
producers of these Billets. Purchase is made either by advance payments or against cash, as practice
prevailing in the market.

 Present market status:

Company is market leader in their products segment and perhaps has the largest manufacturing
facility in India in private sector. The market is fragmented and hence, it is not possible to assess
exact market share.

Company has good standing in the market. it is due to its commitment to supply , quality o product,
availability of all types of long products under one roof and necessary material handling infrastructure
available with company.

Tower generally requires long product p 80 to 100 types , size and dimension company can produce
12 type o steel simultaneously in its 6 manufacturing units , which no other competitors can do it
gives company inbuilt competitive edge over their competitors. One more advantage, company enjoys
is its large capacity. Due to this reason the company is preferred choice of buyers.

 NATURE O INDUSTRY:

The long steel product manufacturing is basically a processing activity. Billets, blooms o steel are
processed into structural steel. Cost of raw material and expenses or manufacturing decides selling
price. No major technology is involved and there are no entry barriers. Company manufactures long
steel product structure made of mild steel, high tensile steel and controlled chemistry steels. Over a
period, company has developed in – house expertise and is now manufacturing these items which are
being used in assembly of transmission line tower, heavy engineering and wind mills.

One tower structure requires up to 80-100 types of steel structural products of different size and
dimension. Because of high degree of precision, quality and range of the product, company is able to
charge premium on its product.

Main user industry is transmission line tower (TLT) manufacture or power sector. Their operating
cycle is between 4.50 moths to 6 months. Longer operating cycle is due to nature of the work i.e.
selection on site, survey, execution, charging o the line, certification from the nodal agency and
receipt of payment. Steel costs approximately 50% of their total cost 50% goes to steel and aluminium
wires, registers, transformer civil work, labour etc... These various item services are rendered by
different agency often resulting in delay of the project. Delay is also occurred due to different terrains
like valleys, mountains, forests etc… all these factors contribute to higher operating cycle for long
steel product manufactures like SREL

Company with range of products, superior technology and ability to supply goods within short time
are able to retain and manage clients and funds. Key to growth and profitability is low production cost
with profile of good consumers.

 DOMENSTIC SCENARIO:
 Domestic demand or TLT is very high. However, company is engaged is these work are acing
liquidity issues due to delay in commissioning of new power plant, delay in allotment o TLT line
work by power grid corporation of India and delay in various approvals and clearances rom various
government departments.

However, long term industrial scenario is very bright. The company being largest player in the sector
having multiple manufacturing capabilities is well placed to take the benefits.

 DEMAND AND SUPPLY:

 Global Market:

Products are not supplied to overseas market. However, some of the customers are purchasing rom us
and executing overseas projects.

 DEMAND \ GROWTH DRIVERS:

 GOVERNMENT POLICIES:

These policies of government are very conductive for overall development of industries infrastructure
and housing. Due to sanctioning of many projects for power and housing demand or transmission
tower and steel in other will increase.

 Major constraints and competition:

The major constraints are increasing prices of energy and cost of production. Considering large size of
market, many small players have entered. However, markets of such a big size, that there is space or
everybody, due to large volume and execution capacity, profitability would be maintained or at least
or 8-10 years. There will be competition from new and existing players. But as small players
manufacture only few types o section in small quantity, their cost of production s always more than
company. Company is able to face competition because of volume, quantity and less cost of overhead.

 FUTURE OUTLOOK/ POTENTIAL:

With opening of power sector and rural orientation or growth, supply of power and demand o it will
be increasing. Lot of infrastructure development is taking place. Already installed power and telecom
towers are becoming due or replacement. Company being one of the largest players with raw material
manufacturing facility also is in better position to encash opportunity.

Products & Services

  ANGLES

STRUCTURAL STEEL RANGE  

MS/HT EQUAL ANGLE
25 X 25mm Any thickness from

Up to 3 mm to 25 mm
250 X 250mm and more also

  MS/HT EQUAL ANGLE

45 X 30 mm 3 to 6 mm 125 X 75 mm 5 to 10 mm

75 X 50 mm 6 to 10 mm 150 X 75 mm 8 to 12 mm

90 X 60 mm 6 to 12 mm 150 X 90 mm 8 to 12 mm

100 X 75 mm 6 to 12 mm 150 X 115 mm 8 to 12 mm

 BROAD FLANGE BEAMS

BROAD  
FLANGE
BEAMS
   
Section Kg/mtr Section Kg/mtr

116 X 100 mm 23 150 X 150 mm 34.6

 152 X 152 mm 37.1 200 X 200 mm 40

 JOISTS / BEAMS

  JOISTS / BEAMS  
  Section Kg/mtr Section Kg/mtr  
100 X 50 mm 8.9 125 X 70 mm 13.4
150 X 75 mm 15 175 X 85 mm 19.5
200 X 100 mm 25.4 250 X 125 mm 37.3
300 X 140 mm 46.1 350 X 140 mm 52.4
400 X 140 mm 61.6 450 X 150 mm 72.4
500 X 180 mm 86.9 600 X 210 mm 124

 FLATS
   FLATS  
   
Section Remarks

25 mm to 300 mm Any Thickness

 SQUARES

  SQUARES  
  Section Remarks  

6 mm to 150 mm Any thickness

 ROUNDS

ROUNDS  
  
Section

6 mm to 150 mm

 BILLETS

BILLET  
S
  Section Length Grade Remarks  
100 X 100 MM
125 X 125 MM
150 X 150 MM
160 X 160 MM
200 X 200 MM
High Tensile Steel, As Per Indian
200 X 250 MM 9M TO 12M
Mild Steel Standard.
200 X 300 MM
200 X 400 MM
230 X 250 MM
250 X 300 MM
300 X 300 MM
 

 SS Product
GRADES UNDER REGULAR PRODUCTION

 300 SERIES
AISI 302, AISI 303, AISI 304, AISI 304L, 304Cu, 304 LER, 308 LER, AISI 310, AISI 316,
 
AISI 316L, AISI 316 Ti, 316 LER, AISI 317, AISI 321, AISI 347
 200 SERIES
 AISI 201, AISI 202
 400 SERIES
 AISI 403, AISI 410, AISI 416, AISI 420, AISI 420 A, AISI 430, AISI 430F, AISI 446,
 DUPLEX
 ASTM A182 F51,
 HIGH ALLOY SS & TOOL STEEL
( WILL BE STARTED AFTER INSTALLATION OF H/T FURNACE):-H11 , H13, O1,
 EN 36C, EN 52, ASTM A564-630 (17-4 PH), AISI 420 B, AISI 431, BLADE QUALITY,
1.4028, 1.4057
 DIN GRADES
1.4301, 1.4307, 1.4401, 1.4404, 1.4541, 1.4571, 1.4001, 1.4021,1.4104, 1.4362, 1.4462
 

 ROLLED PRODUCT
 ROLLED PRODUCT  

( WILL BE STARTED AFTER INSTALLATION OF H/T FURNACE):-H11 , H13,

  O1, EN 36C, EN 52, ASTM A564-630 (17-4 PH), AISI 420 B, AISI 431, BLADE
QUALITY, 1.4028, 1.4057
  FIRST PHASE BY END FEB 2015
FOR 85, 90, 95, 100, 105, 110, 115, 120 & 125 130, 135, 140 & 145, 150 & 160 MM
 
DIA & RCS.
  SECOND PHASE BY END MAY 2015
  FOR 34, 36, 38, 40 , 42, 45, 48, 50 & 52 56,60, 63, 65, 70, 75 & 80 MM DIA & RCS.
  THIRD PHASE BY END AUG 2015
FOR 10, 11, 12, 13, 14, 15, 16, 17, 18, 19, 20, 21, 22, 23, 24, 25, 26,27, 28 & 29, 30 &
 
32 MM DIA & RCS.
  HIGH ALLOY SS & TOOL STEEL
( WILL BE STARTED AFTER INSTALLATION OF H/T FURNACE):-H11 , H13,
  O1, EN 36C, EN 52, ASTM A564-630 (17-4 PH), AISI 420 B, AISI 431, BLADE
QUALITY, 1.4028, 1.4057
  DIN GRADES
  1.4301, 1.4307, 1.4401, 1.4404, 1.4541, 1.4571, 1.4001, 1.4021,1.4104, 1.4362, 1.4462

Products of Sanvijay are the backbone of its industrial development. Some of the diversified sectors
where its product are used includes

 Transmission Line Towers

 Communication Towers
 Wind Mill Towers
 Ship Building
 Railways
 Industrial Infrastructural Projects &
 Other Nation Building Infrastructures like Bridges, Electrification Project etc

 CLIENTS OF SANVIJAY ROLLING AND ENGINEERING LTD

 .

Rolling Mills Details  

30 / 28"Rolling Mill  

Induction Furnace (IF)  

Argon Oxygen Decarburisation (AOD)  

Ladle Refining Furnace (LRF)  

Cored Wire Injection  

Continuous Casting Unit - I  

Continuous Casting Unit - II  

Ingot Casting (Starting from 1st February 2015)

Infrastructure - Install Machines

 
 Chapter – 4
THEROTICAL REVIEW

COST –
An amount that has to be paid or given up in order to get something. In business, cost is usually a
monetary valuation of: - effort, material, resources, time and utilities consumed, risks incurred, and
opportunity forgone in production and delivery of a good or service. All expenses are costs, but not all
costs (such as those incurred in acquisition of an income-generating asset) are expenses.More
generalized in the field of economics, cost is a metric that is totalling up as a result of a process or as
a differential for the result of a decision .Hence, cost is the metric used in the standard modelling
paradigm applied to economic processes. Costs are often further described based on their timing or
their applicability.
The term 'cost' is most widely used as the 'money cost' of production which relates to the money
expenditure of a firm on: Money costs therefore relate to money outlays by a firm or factors of a
production which enable the firm to produce and sell a product.
Costs are means of communication. Ideas of the top management are given the practical shape. As the
activities of various department heads are coordinated at the much needed for the very success of an
organization. Cost is necessary to future to motivate the staff associated, to coordinate the activities of
different departments and to control the performance of various persons operating at different levels.
Costs may be divided into two basic classes. Capital and operating costs. Capital cost is directed
towards proposed expenditure for new projects and often require special financing. The operating
costs are directed towards achieving short-term operational goals of the organization for instance,
production or profit goals in a business firm. Operating costs may be sub-divided into various
departmental of functional costs. A process by which business decisions are analysed. The benefits of
a given situation or business-related action are summed and then the costs associated with taking that
action are subtracted. Some consultants or analysts also build the model to put a dollar value on
intangible items, such as the benefits and costs associated with living in a certain town. Most analysts
will also factor opportunity cost into such equations.
Cost is essential in every walk of our life – national, domestic and Business. A cost is prepared to
have effective utilization of funds and for the realization of objective as efficiently as possible.
Costing is a powerful tool to the management for performing its functions i.e., formulation plans,
coordination activities and controlling operations etc., efficiently. For efficient and effective
management planning and control are two highly essential functions. Costing and cost control provide
a set of basic techniques for planning and control.
 Cost Control Techniques
This refers to the various methods applied in controlling cost by various organisation. The
techniques are evolved by the account department with cost and management section at the core
of implementation. It includes the following; budgetary control, standard costing and material
control

Cost Control
Techniques

Budgetary
Standard costing Material control
control

Budgetary Control
Budgetary control is a system whereby the budgets are used as a means of planning and controlling
costs. Budgeting is laid down as to what is attained and how it is to be attained while control ensures
that the objectives are realised and actual results do not deviate from the planned course more than
necessary. Budgetary control system is a system of controlling costs which include the preparation of
budgets, co-coordinating the department and establishing responsibilities, comparing actual
performance with the budgeted and acting upon results to achieve maximum profitability. ACCA
Study Text (n.d.) defines budgetary control as the establishment of budgets relating to the
responsibilities of executives to the requirement of a policy and the continuous comparison of actual
with budgeted results, either to secure by individual action the objective of that policy or to provide a
basis of revision. From this definition, it is clear that budgetary control operates through different
budgets.

Standard Costing

The technique of standard costing is applied in order to overcome the various limitation of historical
costing. Historical costing which refers to the ascertainment of costs after they have been incurred
provides the management with an account of what has occurred. Standard costing technique involves
the preparation and use of standard costs, their comparison with actual costs and the analysis of the
deviations to their causes so as to provide for corrective action (Sikka, 2003). Lucey (1996) defines
standard costing as a technique of cost accounting which examines the standard cost of each product
or service with actual cost to decide the competence of the operation, so that any remedial action may
be taken immediately. ACCA Study Text (n.d.) defines standard costing as the readiness and use of
standard costs, their similarity with actual costs and the analysis of variances to show their causes and
points of incidence. Basically, standard costing is a technique of cost control under which cost data
for activity are predetermined on the basis of normal levels of operation. The efficiency and costs
incurred at actual performance are compared with pre-determined standards and deviation or variance,
if any is ascertained, an analysis of variance is made with reference to their causes with a view to fix
the responsibility of the particular executive. A report on such analysis is submitted to the
management to enable to take corrective measures to ensure that actual costs are consistence with
standard costs in future.

Material Control

In an average manufacturing concern, the cost of material constitutes a large proportion of the total
product cost and as such there should be a proper system of material control to ensure economy in the
cost of production. Material control is a system which ensures the provision of the required quantity
of material of the required quality at the required time with the minimum amount of capital
investment

STEPS IN COST CONTROL

Sikka (2003) believed that efficient organisation andoperations of cost control system involves the
followingsteps:

 Setting up the targets

 Measurement of the actual;
 Comparison of actual with targets to ascertainvariances;
 Analysis of variance to their causes;
  Taking such corrective actions as are necessary toeliminate the variation.

 COST CONTROL APPLICATION

A complex business requires frequent information about the operation in order to plan for the
future, to control present activities and to examine the past effectiveness of the manager,
employees, and related business segment (Cooper et al., 2000). To achieve, management runs the
activities of its people in the operation of the business according to pre-determined goals and
objectives. Cooper et al. (2000) also stated that, behavioural management deals with the attitude
and actions of employee behaviour which ultimately impacts on success. Behavioural
management involves certain issues and assumption not applicable to accountings control
function. On the hand, performance evaluation measure outcomes of employee’s action by
comparing the actual result of the business outcome to predetermine the standard of success. In
this way management identifies the strength, it needs to maximize and the weakness it seeks to
rectify. 1.7 Benefits of Cost Control Cost control work should enhance the efficiency of
management and if necessary, should result in action being taken to reduce the cost for profit
purposes and to prevent fraud and efficiency (Dury, 1985). Some of these benefits are as follows:

 A simple control can be expressed over all operation from the purchase of goods to account
for sales
 An efficient cost control with reveal possible sources of economy and result in a rational
utilization of material and labour.
 Cost control makes policy decisions by management very easy.
 It ensures adequate production and prevent over stocking of material.
 IMPORTANCE OF COST CONTROL IN BUSINESS

Lockey (2002) analyzed the importance of cost control on business operation. The importance of
control function is to assist or help business management in diverse ways. It guides the management
in achieving pre-determined objectives. The control process also ascertains the competence of
different functions. The limitation in various fields is also reported for taking corrective measures and
provides starting point for future action. The unchanged flow of information about projects keeps the
long range of planning on the right track. More so, it allows management to prevent repitition of
previous mistakes. Control helps in deciding the future course of action each time there is a difference
between standard and actual performance. Coordination of exercise through unity of action is
achieved by control. Managers will put in their best in coordinating the exercise of his workers or
staff so that departmental objectives can be a success. Improving organizational competence is
achieved through the control system. Evidently, the performances of the manager are constantly
examined and hence, do better than his previous work. The performance of the manager is linked to
the advantages and disadvantages. Workers will continually be pressurised in order to improve on
their duties. One of the important tools of control is performance measurement which ascertain that
each individual maximizes his contribution
 AREAS COVERED BY COST REDUCTION: -

Following are the critical areas of application of various cost reduction Techniques:

 DESIGN: -

The design function offers management the greatest potential for cost reduction as the impact of any
economies or cost reduction effected at this stage shall be felt throughout the manufacturing life of a
product. In other words application of value analysis method at the designing stage itself would go a
long way in maximizing the profits. But this does not mean that the design cost reduction should be
restricted solely to new products only. In fact, it should include critical analysis for all products within
the product range of the organization.

 ORGANIZATION: -

A considerable amount of cost reduction can be affected by improvement in organization. The

organization can be improved by taking following steps: -

a) Defining each stage of responsibility. It should be ensured that there is no overlapping of

duties and responsibilities.
b) There should be well defined channels of communication between various management
levels.
c) Delegation of responsibility should be encouraged to ensure quick and effective decision
making.
d) Efforts should be made to implement management by objective, ie, individual objective
must be in line with organizational objectives.
e) Cooperation and close relationship between the various executives should be encouraged.
f) Encouragement in the form of incentive etc, should be offered to the employees for coming
up with suggestions leading to cost reduction.

 PRODUCTION PLANNING AND CONTROL: -

Production planning and control function is a very large area for cost reduction scrutiny. It covers
planning, inventory control, material handling and usage, and production offering considerable scope
of savings. The four principal components of cost are material, labour, overheads and capital. An
efficient cost reduction plan should aim at reducing the per unit costs on these counts by examining
the following points-

a) Whether wastage of manpower and material is kept to the minimum.

b) Whether any scope is there for reducing idle capacity and increase in
Productivity.
c) Whether efficient system of inventory, inspection and stock taking is there.
d) Whether the incidence of stock losses due to pilferage, deterioration, obsolescence and
other causes are at minimum.
e) Whether the storage, location and other associated costs are kept to minimum and best
method of production has been adopted.
f) Whether production schedule can be improved to match delivery schedule.
g) Whether there is any scope for reduction in indirect materials and
Labour costs.
h) Whether there is any scope for reduction in overhead costs.

 FACTORY LAYOUT AND EQUIPMENT: -

An effective arrangement of plant and machinery is a fundamental requirement. A successful plant

layout shall contain following features-

a) Optimum use of space.

b) Effective built in flexibility.
c) Efficient control of work flows with least disturbances.
d) Minimum material handling.
e) Minimum waste.
f) Work satisfaction and enhanced productivity.

 UTILITY SERVICES: -

utility services include power, water, steam, repair and maintenance and transport etc. the following
points of consideration can lead to effective cost reduction-

a) Whether the utilities are supplied at economic costs or whether there is Scope for any
further increase in utilization.
b) Whether the proper system for preventive and curative maintenance is there.
 c) Whether wastage and other losses in distribution have been kept to minimum.
d) Whether work flow and loading factor has received due attention.

 MARKETING: -

The marketing function may not lead itself so easily to Cost reduction as other business functions. But
a number of techniques do exist for reducing such costs and these can result in substantial savings for
business. This function includes selling function and distribution function. The marketing function
covers salesman salaries and their sales offence expenses and administration, marketing research,
advertising and after Sales service. The distribution function includes the method of disposition of
products, i.e., wholesale, (retail of direct), the method and location of warehousing, the packing and
transport. There can be considerable scope for comprehensive reorganization of existing methods
and substantial reductions in costs. Following points may attract attention in his connection.

a) Whether there is optimum utilization of salesmen s working time.

b) Whether rearrangement of territories can bring about cost reduction;
c) Whether channels of distribution are efficient and economical;
d) Whether there is an effective system of sales promotion;
e) Whether market research is adequate;
f) Whether any alternative media of advertisement can lead to cost
Reduction; and
g) Whether the method of distribution chosen is most efficient in terms of
factory and warehouse locations, distribution and customer locations
so on;
 FINANCE: -

The effective employment of capital in a business is of paramount importance. For example, the
investment in the right machinery at the right time can yield significant cost advantages. Following
points are relevant in this connection:

a) Whether the methods of funding capital expenditure are cost effective.

b) Whether capital is secured at economical cost; and
c) Whether the capital is economically employed so as to give the maximum return.
  MAJOR DIFFICULTIES IN COST REDUCTION:-

Resistance by the employees of the organization to pressure to reduce costs usually because the nature
and the purpose of the campaign has not been properly explained to them and they feel threatened by
the change. They may be confirmed to small area of the business {e.g. to one department} with the
result that costs are reduced in one cost centre only to reappear as an extra cost in another cost center.
Efforts to cut material and Labor cost may erode confidence in established system for estimating
material usage and labour productivity standards. Cost reductions are campaigns are often introduced
as a rushed, desperate measure instead of a carefully organized exercise.

Cost Reduction Programme may demand attention of a number of experts from different fields. A cost
Reduction committee may be formed with representative of major departments or divisions like
marketing, production planning, purchases, etc. A cost or management accountants acts in the
capacity of an interpretation and advisor The committee studies principle phases programmed for Cost
Reduction. It decides the areas of potential savings and determines the priorities and allocates
assignments to appropriate staff. Cost Reduction is possible with the help of unit cost reduction by
curtailing expenditure and by increasing the productivity.
Chapter- 5

LITRETURE REVIEW

The literature review covers the work done in India and Jordan relating to different aspects of cost
accounting and is relevant for this study. Due attention has been given to ensure that latest
information are incorporated. For the purpose of systematic presentation, literature review has been
divided into different sections like cost and costing techniques. Cost estimation and ascertainment,
cost accounting practices in different countries and cost control techniques. Proper care has been
taken in accepting the study, that it should be thoroughly researched one

Nowadays managements of companies are becoming increasingly cost conscious and are constantly
searching for new ways of controlling cost and eliminating wastages. One of the objectives of cost
accounting is to achieve cost control. It is not enough if costs are worked out and presented regularly
to the management, the effectiveness of cost accounting is judged primarily from the extent to which
it has been able to bring about a control over the manufacturing and other costs, Sikka (2003).

CIMA in its terminologies of cost accountancy defined cost control “as the guidance and regulation
by executive action of the costs of operating an undertaking,
particularly where such action is guided by cost accounting”

COST REDUCTION -

Low production costs has become one of the primary ways that organizations compete in a global
economy, hence, cost reduction must continually be in the minds of managers of organization
(McWatters, Morse, & Zimmerman, 2001). Cost reduction is a planned approach to reduce
expenditure. It is a continuous process of examining critically all elements of cost and each aspect of
the business with a view to improving business efficiency. cost reduction is a corrective function.
Cost reduction is the process of cutting down costs incurred by an organization for the purpose of
making profit. It starts when cost control ends and considers that no cost is at its optimum level.
According to Adeniyi (2001), cost reduction starts with an assumption that current cost levels or
planned cost levels are too high despite the fact that cost control may be good and organization
experiencing high efficiency levels
 Chapter – 6
(A) RESEARCH METHODOLOGY

- DEFINITION-

Research is an endeavour / attempt to discover, develop and verify knowledge. It is an intellectual

process that has developed over hundreds of years ever changing in purpose and form and always
researching to truth.”

ABOUT THE STUDY-

Parameters Descriptions

Type of research Descriptive

Source of data collection secondary data

Primary data Questionnaire

Secondary data Research paper, company website etc…

This chapter focused on the researcher‘s scope of methodological procedures employed in the study.
These included; research design, study locality target population, sample size and sampling procedure,
data collection instruments, pilot study and data analysis techniques. Research design

The study adopted a descriptive survey study design. This study method was appropriate because it
explored and described the relationship between variables in their natural setting without
manipulating them. The design aimed at obtaining information that could be analysed, patterns
extracted and comparison made for the purpose of clarification and provision of basis for making
decisions .Descriptive survey study design has been defined as systematic gathering of information
from respondent for the purpose of understanding or predicting some aspects of behaviour of the
population of interest. Both qualitative and quantitative data was obtained for comparison purposes.
(B) RESEARCH METHODOLOGY IN APPLICATION

- STATEMENT OF PROBLEM

Some of the problems which the research tries to offer suggested solution to include:

1. to identify the factors militating against the suciess of the cost reduction exercise in a
manufacturing companies

2. to evaluate how business organization can use control in increasing profit maximization

3. to know the effect of cost control and cost reduction on the overall performance of business
organizations.

4. to identify the strategies for solving competitive business economic problem.

5. Evaluation of the techniques involve in solving these problems, and how these techniques can be
applies.

6. To evaluate the operation costing system chosen by companies and how effective it is.

- RESEARCH DESIGN

The study adopted a descriptive survey study design. This study method was appropriate becauseit
explored and described the relationship between variables in their natural setting withoutmanipulating
them. The design aimed at obtaining information that could be analysed, patternsextracted and
comparison made for the purpose of clarification and provision of basis for
makingdecisions.Descriptive survey study design has been defined as systematic gathering of
information fromrespondent for the purpose of understanding or predicting some aspects of behaviour
of the population of interest. Both qualitative and quantitative data was obtained for comparison
purposes.

- DATA COLLECTION

The main objective of the study is to determine and analyze the financial position and Cost reduction
of the SANVIJAY ROLLING AND ENGINEERING LTD . For this purpose, the information was
collected by two ways:

1. Primary Data:

Primary data is that which is not published but it is very useful data. So the information was collected
by discussion held with the executives of accounts and finance department.

2. Secondary Data:
Secondary data consist of the information that already exists or someone has collected it for specific
purpose. This data was collected by:

A) The company profile was collected from website of SANVIJAY ROLLING AND
ENGINEERING LTD ,

B) The other analytical information was collected from annual report and books and discussion with
finance manager.

SAMPLES & SAMPLES USE

The study focused on all aspects of cost reduction in a manufacturing company . In order to
carry out an in-depth and comprehensive study, 74respondents were randomly selected.
These respondents cut across all the cadres of the company’s employees in production, sales,
purchasing, accounts and stores departments

-SAMPLING FRAME

The target population of this study consisted of 33 respondents which comprised groups from;
auditors, internal board members and financial management employees from the freight companies
CHAPTER - 7

DATA ANALYSIS & INERPRETATION

All the data is represented in Ms- excel according to the study done. Various tools of Ms-
excel have been used for depicting the data graphically, which makes easy to analyse and
compared.

COST - VOLUME – PROFIT ANALYSIS

 Cost-Volume-Profit analysis is analysis of three variables i.e.,

 cost,

 volume and

 profit

Which explores the relationship existing amongst costs, revenue, activity levels and the
resulting profit.

IMPORTANT

 The CVP analysis is very much useful to management as it provides an insight into
the effects and inter-relationship of factors, which influence the profits of the firm.
 CVP - TABLE

COST - VOLUME – PROFIT ANALYSIS

GRAPH AND
INTERPRETATION
P/V RATIO

CHAPTER – 8

FINDINGS
CHAPTER – 11

SUGGESTIONS
CHAPTER – 12

CONCLUSION

CONCLUSION • The two techniques cost control and cost reduction are used
by many manufacturing concerns to diminish the cost of production • Cost
Reduction has a larger scope than cost control as cost reduction is applicable
for all the industries, but cost control is applicable only to the industries
where pre- optimisation of the cost which is not yet incurred is possible. •
Cost Control works as a road map for the organization to incur costs as per
the set standard. On the other hand, cost reduction challenges the
established standards by decreasing the costs and increasing the profit

SUGGESTIONS

Planning has become the primary function of management most of the planning relates to individual
and individual proposals. Costs are nothing but his expressions, largely in financial terms, cost
control has, therefore become and essential tool of management for controlling and maximizing
profits

• The company objectives of the organization and how they can be achieved through cost control •
Time tables for all stages of costing follow

• Reports, statements, forms and other record to be maintained

• Continuous comparison of actual performance with coasted performance.

CHAPTER - 13

BIBLIOGRAPHY

CHAPTER – 14

ANNEXURE
.