Question

Q1. A question related to cost control (without jeopardizing quality): What can the purchasing manager of an organization do to control costs of raw materials? And the production manager? Or is this cost control strategy company wide? What are some management tools that we can use to encourage everyone to think lean yet maintain quality? Examples: Quality circles, TQM, continuous process improvement, JIT, participative leadership styles, and so forth. Let's think outside of the box!

Q2. When pricing products or services, all costs must be accounted for. This list would include VC and FC. I've seen government project bids badly priced (VC + markup rather than total costs + markup). Ultimately, as stated, consumers will not pay above what they can pay another supplier for the same product. Here we have a few things to consider: reduce costs to remain competitive, and/or differentiate our product. Let's discuss!

Q3. Would the CM approach better assist management in ensuring that all costs will be covered? I think that under absorption costing, FC would become inventoriable and thus buried when production exceeds sales. Conversely, under the CM approach, FC are treated as period costs, and thus it is less likely to overstate profits. What are your thoughts on this topic?

Answer 1

Purchasing manager of an organization may do to control costs of raw materials by, yes

1. Useful Negotiation of Price.
2. Useful Payment terms to save on Interest Cost.
3. On Time delivery of material, in order to avoid accumulation of Excess Stock.

Production manager of an organization may do to control costs of raw materials by, yes

1. Draw Only Required Qty in to production Process to avoid Excess WIP in shop Floor
2. Avoid any Scrap of Materials.
3. Adherence to Standard Time allowed to Complete WIP & Finished Goods.
4. On Time Delivery of Finished Goods.

Management tools that we may use to encourage everyone to think lean, yet maintain quality are

1. Optimise and Accomplish – Just In Time technique to Avoid Stock Accumulation and help to maintain Quality for limited Stock.
2. Better Co-ordination among all functionalities of all department Achieve Quality performance.