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

Which of the following is a cost reduction technique rather than a cost control technique?

Value engineering is a cost reduction technique because it redesigns a product or its process to lower unit cost while keeping required function. The other options compare with or enforce existing budgets and standards, which is cost control rather than permanent reduction.

  1. AValue engineering of a product before launchCorrect
  2. BMonthly comparison of actual and budgeted overhead
  3. CSetting a standard cost for labour hours
  4. DIssuing materials only against authorised requisitions

Explanation

Value engineering redesigns the product to lower its cost while retaining function, giving a permanent reduction in unit cost. The other options monitor or restrict spending against existing targets, which is cost control.

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