The identification and type of costs used in cost reduction decisions

The objective of this research is to consider how costs are identified for reduction and the type of costs that are reduced in cost reduction decisions. To achieve this objective the research uses the questionnaire responses from a sample of management accountants working in British manufacturing industry to identify the type of costs used in cost reduction decisions. These questionnaire responses provide the basis for a series of interviews to examine how cost reductions are identified and how costs are applied in cost reduction decisions. Full costs have been found to be the most common type of product cost used in cost reduction decisions. Furthermore, the most common type of full cost used was the manufacturing cost followed by the total cost. Companies adopting activity-based techniques use a variety of approaches to cost management that include identifying activities and resources used to reduce overhead costs, identifying and removing non-value added activities, and activity mapping.