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

Which of the following is an example of cost reduction rather than cost control?

Redesigning a product to use 15% less material while keeping the same function is cost reduction, because it permanently lowers unit cost by changing the standard itself. The other options work within existing standards or budgets, so they are cost control activities.

  1. AInvestigating an adverse material price variance and agreeing a return to the standard price
  2. BRedesigning a product so that it uses 15% less material while performing the same functionCorrect
  3. CComparing monthly actual overheads with the flexed budget
  4. DSetting a budget limit on departmental stationery spend

Explanation

Redesigning the product permanently lowers unit cost and changes the underlying standard. The other options keep costs within existing standards or budgets, which is cost control.

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