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

Which of the following is a likely drawback of focusing only on cost reduction targets?

A focus solely on cost reduction may harm quality or customer satisfaction, because cuts are made without regard to the value customers receive. It does not change cost behaviour, prevent variance analysis, or remove the need for budgets.

  1. AQuality or customer satisfaction may fall if cuts are made without regard to valueCorrect
  2. BVariances can no longer be calculated
  3. CFixed costs become variable costs
  4. DBudgets become unnecessary

Explanation

Aggressive cuts that ignore function can lower quality, harm customer perceptions and damage long-term profit. Cost reduction does not stop variance calculation, change cost behaviour, or remove the need for budgets.

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