Cost reduction statistics
The theory of cost estimation is a fundamental concern of managerial economics.
In Stiglers study of the US steel industry, the shares of the largest and smallest categories of firms both declines in the long run, while the shares of firms in a range of medium-sized categories increased, thereby implying a U-shaped long-run cost curve with.
They are explained as under: (a) Master Budget and Functional Budget : Master budget is the summary budget which covers all types of budgets such as sales, production, costs, profit and appropriation of profit, and major financial ratios.
Similar calculations are made for different levels of output.The variable overhead variances are: (a) Overhead expenditure variance, and (b) Overhead efficiency variance.These are a modified version of ideal standard costs.It helps in directing, counselling, guiding and supervising in a co-ordinated manner so this improves the overall performance of the business unit.It focuses on the two primary areas: Reduction in Expenses : Decrease in the expenditure in the given volume of output, leads to the decrease in unit cost.It is necessary in order to achieve the goal of profit maximisation.(b) Capital Budget and Revenue Budget : Business activity involves two processes: (i) Creating of facilities for carrying the business activities; and (ii) carry out the activities.Tools of Cost Control.Limitations of Standard Costing : Even though this method confers several benefits, there are certain difficulties which are listed below: (i) Application of standard costs is quite difficult in practice.Materials mix variance is that portion which is due to change in the composition of materials mix.If the benefit remains the same and the price falls then again the value is increased.(v) Preparation of budget methods: Performance Budget and Zero-base Budget.
(ii) Method Study : Method Study is a systematic study of work data and critical evaluation of the existing and proposed ways of undertaking the work.
Difficulty of adjustment of cost data in the face of inflation.