Cost accounting- cost reduction

This query is : Resolved

Guru Vignesh K (Querist)
Follow

06 October 2015 cost reduction is good for business or not?

according to prudence principle we are valuing closing stock at cost/market price which ever in lower because its effect will reduce future profits.

likewise assuming there is no change in selling price, if we decrease the the cost of product it will increase the profit.

would any one pls help me to understand the concept?

Amol S Joglekar

Amol S Joglekar (Expert)
Follow

06 October 2015 Which one is not understandable by you? The first one or the second one?

First one i.e. value of closing stock. The conservative principle is followed in this.

Second one....please read it as IF AT ALL we decrease the cost of product.... it will increase the profit.

Now what is the query?

Guru Vignesh K

Guru Vignesh K (Querist)
Follow

06 October 2015 the second one. cost decreases profit increases - by cost reduction technique, we reduces the cost it increases the profit. Every business men whats to know the actual profit of a business but he also want to pay less tax (increased profit will make him to pay high tax). know what he must do weather to use cost reduction technique or not to find the cost of a product?

Guru Vignesh K

Guru Vignesh K (Querist)
Follow

06 October 2015 what is your advice sir??

Amol S Joglekar

Amol S Joglekar (Expert)
Follow

06 October 2015 The mind set of paying LESS tax has gone by far now. People are paying the legitimate taxes. "30 rupees to be shelled out to GOI for every 100 rupee profit" is not well digested by the companies. The small timers may still try to EVADE tax but not the big timers.
The derivative function is very simple... for every rupee earned, 30% goes to GOI and 70% remains with company. Accordingly the call has to be taken.
Because GOI is earning 30%, are you ready to give up your 70%?

Guru Vignesh K

Guru Vignesh K (Querist)
Follow

06 October 2015 in this we have to ask him to use cost reduction technique to know actual profit?

Amol S Joglekar

Amol S Joglekar (Expert)
Follow

06 October 2015 What is the nexus? Finding actual profit vis a vis Cost reduction are 2 separate functions.

For knowing actual profit we need not ask anybody to USE cost reduction technique. Both the actions are independent of each other.

Message likes : 1 times

You need to be the querist or approved CAclub expert to take part in this query .
Click here to login now