SYNOPSIS

Title of the study :

“A study on cost reduction and control at Suzlon Energy Ltd”

INTRODUCTION

COST CONCEPT

The term "cost" is synonymously used for the term "expense", which refers to sacrifice.
According to Committee of cost concepts-"Cost is foregoing, measured in monetary terms,
incurred or potentially to be incurred to achieve a specific objective." Controlling Cost via
Responsibility Accounting- To control cost these fundamentals should be observed

 Fixing responsibility to control.

 Limiting the individuals control efforts to his controllable costs
 Reporting the performance of individual.

CLASSIFICATION OF COSTS

Classification by Nature:

1. Direct cost - Direct cost is that cost which can be identified with a cost centre or a cost
unit. For e.g. cost of direct materials, cost of direct labour.
2. Indirect cost - Cost which cannot be identified with a particular cost centre or cost unit
is called indirect costs. For e.g. wages paid to indirect labour.

Classification By Behavior:

1. Fixed cost - Fixed cost is that cost which remains constant at all levels of production.
For e.g. rent, insurance.
2. Variable cost - The cost which varies with the level of production is called variable
cost i.e., it increases on increase in production volume and viceversa. For e.g. cost of
materials, cost of labour.
 3. Semi-variable cost - This cost is partly fixed and partly variable in relation to the
output. For e.g. telephone bill, electricity bill.

Classification by Element:

The cost is classified into (a) Direct Cost, and (b) Indirect Cost according to elements, viz,
Materials, Labour and Expenses

Classification by Function:

i. Production cost - It is the cost of the entire process of production. In other words it is
nothing but the cost of manufacture which is incurred up to the stage of primary packing
of the product.
ii. Administrative cost- It is the indirect cost pertaining to the administrative function which
involves formulation of policies, directing the organization and controlling the operations
of an undertaking. This cost is not related to any other functions like selling and
distribution, research and development etc.
iii. Selling cost - Selling cost represents the indirect cost which is incurred for
a. seeking to create and stimulate demand
b. securing orders.
iv. Distribution cost - It is the cost of the sequence of operations which begins with making
the packed product available for dispatch and ends with making the reconditioned returned
empty package, if any available, for re-use.
v. R&D cost - "Research Cost" and "Development cost" are two different types of costs.
Research cost is the cost of researching for new products, methods and applications.
Development cost is the cost of the process which begins with he implementation of the
decision to produce the new product or apply the new method and ends with the
commencement of formal production of that product or by that method.
vi. Pre-production cost - It is that part of the development cost which is incurred for the
purpose of a trial run, before the commencement of formal production.
vii. Conversion cost - It is the cost incurred for converting the raw material into finished
product. It comprises of direct labour cost, direct expenses and factory overheads.
 viii. Prime cost - Prime cost is the aggregate of direct material cost, direct labour cost
and direct expenses. The term ‘direct’ indicates that the elements of cost are traceable to a
particular unit of output.

STATEMENT OF THE PROBLEM :

The need for cost reduction is growing as more companies struggle with global competition
and the faltering economy. One way that companies can regain control over their costs is not only
to assess these costs, but also systematically classify and identify product costs. Using a systematic
approach to perform cost reduction not only yields cost improvement but provides decision-
makers with the trade-offs involved in achieving these reductions.

The modified value-engineering method requires careful data collection and analysis,
product cost identification and redesign and implementation

OBJECTIVES OF THE STUDY :

1. To study how to reduce the variable and fixed costs of the company
2. To study how to bring a proper balance among quality and costs as well as quality and
time schedule. Generally the product quality standards are often established by the
product specifications or by the consumers.
3. To study and understand the cost reduction and control measures being used by the
Asian paints company.

RESEARCH METHODOLOGY :

A research process consists of stages or steps that guide the project from its conception
through the final analysis, recommendations and ultimate actions. The research process provides
a systematic, planned approach to the research project and ensures that all aspects of the research
project are consistent with each other.

RESEARCH DESIGN

I propose to first conduct an intensive secondary research to understand the full impact and
implication of the industry, to review and critique the industry norms and reports, on which certain
issues shall be selected, which I feel remain unanswered or liable to change, this shall be further
taken up in the next stage of exploratory research. This stage shall help me to restrict and select
only the important question and issue, which inhabit growth and segmentation in the industry.

TOOLS FOR DATA COLLECTION

The method I used for exploratory research was

 Primary Data

 Secondary data

PRIMARY DATA

New data gathered to help solve the problem at hand. As compared to secondary data which
is previously gathered data. An example is information gathered by a questionnaire. Qualitative or
quantitative data that are newly collected in the course of research, Consists of original information
that comes from people and includes information gathered from surveys, focus groups,
independent observations and test results. Primary data is basically collected by getting
questionnaire filled by the respondents.

SECONDARY DATA

Information that already exists somewhere, having been collected for another purpose.
Sources include census reports, trade publications, and subscription services. Data that have
already been collected and published for another research project (other than the one at hand).

Secondary source of data used consists of books and websites

PLAN OF ANALYSIS

The received data will be tabulated and formulated and then interpreted in terms of Graphs
and Charts.

CHAPTER SCHEME