Question

Explain 3 reasons why it is important to keep production cost at a managable level

Answer 1

Cost Minimization or controlling the cost can be seen as a financial strategy in which the main objective is to accomplish the most cost-effective way or process of producing products or services with the desired level of quality.

The main reasons for having a manageable cost of production are given as below:-

By having the cost of production under manageable scale, the company can offer the similar products to the customers at a lower price level in comparison to the competitors thus the price-sensitive customers will switch to the products of this company and thus it will help in improving the market share and revenue of the company.

If the cost of production is controlled within certain levels, the cost incurred in maintaining the inventory, work in process, and the requirement of working capital will be reduced and thus this saved money or funds can be invested in some other ventures.

By maintaining the production cost under control the company can have greater flexibility in its operations and can have a competitive advantage over its competitors due to lower production cost.