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Reduction of cost

MAHSHAD (IPCC) (42 Points)

20 January 2012

Please explain me the following....

what is meant by lengthening of season?

What is offseason? and How cost is reduced during off season?

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7 Replies

CMA Shilpa Shinde (COST ACCOUNTANT) (217 Points)
Replied 23 January 2012

Dear MAHSHAD,

There are several Seasonal Manufacturing Industries, the production cycle changes based on season for the product.

like for example
Monsoon season is pick season for manufacturers as well as dealers of Umbrella.

whille winter season is offseason for umbrella in comparison to monsoon.

whille Winter season is pick season for dry-skin care creams manufacturers and dealers and not same in summer and monsoon season.

Therefore during Offseason, the production activity come down in comparison to pick season i.e.,

demand season for product.

Company variates its oveheads based on seasonal requirement. while direct cost changes parallel to production, so is cost reduction takes place. Though few fixed cost had to be covered.

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MAHSHAD (IPCC) (42 Points)
Replied 23 January 2012

Thank you friend

I understood your explaination but please still I need more clarification on the statement below....

Curtailment of loss during off-season:

"Cost Accounting provides information, which may enable reduction of OH, by utilizing idle capacity during the off-season or by lengthening the season."

How the mgt use idle capacity during off-season?

What is lengthening the season mean?

CMA Shilpa Shinde (COST ACCOUNTANT) (217 Points)
Replied 24 January 2012

Dear MAHSHAD,

Lengthening the season means : production during off-season by use of idle capacity, there by making

availability of products in pick season when there is highest demand, by making use of off-season idle

capacity, so that in pick season when demand for product is more than available capacity the same

can be met from the products produced during off-season using idle capacity so that for excess

demand of product, company need not outsource the production to sub-contractor which may cost high

during pick season as demand increases prices also goes up, and thus at same time loss is also

curtailed.

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MAHSHAD (IPCC) (42 Points)
Replied 24 January 2012

Thank you for sharing your knowledge dear friend......

But if company produces goods during off season, wont there be problem of excess locking up of funds in stock since there is no revenue (ie.no sale) until peak season leading to non availiability of funds for meeting short term liabilities(creditors,bills payable etc), salaries and wages and other such expenses during the off season.