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ACCA Applied Knowledge · Management Accounting · Cost reductions and value enhancement

Which action is an example of value enhancement rather than simple cost reduction?

Adding a feature that customers value, supporting a higher price, is value enhancement because it raises the benefit delivered. Cheaper materials, lower advertising and delaying supplier payments only cut costs or manage cash and do not improve customer value.

  1. AAdding a service feature that customers value, allowing a higher selling price while cost rises modestlyCorrect
  2. BSwitching to a cheaper raw material of lower quality
  3. CReducing the advertising budget by 20%
  4. DDelaying payments to suppliers to improve cash flow

Explanation

Value enhancement increases the benefits perceived by customers, often supporting a higher price, rather than only cutting cost. The other options reduce cost or manage cash without improving customer value, and the cheaper material may even reduce value.

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