Overhead Cost Reduction: The Problem of Reducing Costs

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Overhead Cost Reduction: The Problem of Reducing Costs

Introduction

Overhead is analyzed into three broad groups, these are, production overhead, administrative overhead and selling and distribution overhead. It is important to grasp that although overhead is the same from whatever angle we view it from, the methods of overhead reduction will differ from one group to another. In the recent competitive times, companies face the problem of reducing costs and at the same time maintaining their products and services at a competitive level. Companies are forced to restructure their business models to cut company costs, this has been done through various methods such as, business process reengineering, business outsourcing, shared services and enterprise resource planning. By sharing services the company is able to reduce costs such as administration costs, rental costs and transport costs across departments, a company can reduce the overhead costs of hiring these services separately hence reducing administrative and selling and distribution overheads simultaneously. Business process reengineering is the process of transforming business processes to achieve improvement in performance, costs, quality of products and services and efficiency. It is important for companies to transform their business processes from time to time to ensure that they utilize their resources effectively and achieve maximum output. Through outsourcing, a company is able to minimize costs of production, for example when a company outsources a service like customer care; it is able to meet the clients need in an efficient and economic manner. Finally, through enterprise resource planning a company can avail information between departments cheaply and ensures management of the business in an efficient manner. Enterprise resource planning assists in the reduction of administration overheads if effectively implemented.

Fair value

Simply put, Fair value is an estimate of an assets unbiased market price. It refers to the market value of the assets and liabilities that a company has acquired over a period. Fair value makes futures contracts possible by representing a price level for buying and selling and is a function of cash value and any financial charges minus the dividends accrued to the future date of settlement. There is no single framework for measuring fair value and this has brought about inconsistencies in accounting for the fair value. This essay will explore the method of using quoted prices of similar assets and liabilities in estimating the fair value. For example, when assessing the fair value of a given stock in the stock exchange, it is important to study other stocks that are similar in nature to that particular stock. This study can be undertaken through observing the transaction involving these assets and liabilities and using the results to determine the fair value of that particular asset or liability. The use of quoted prices of similar assets and liabilities in estimating the fair value has a major setback in that it is difficult to find assets and/or liabilities that are identical. That includes assets and liabilities that have the same interest rates, yield, price etc. it becomes important to estimate fair value not by the prices of similar assets and liabilities alone but also based on the market trends and observations. If there is no external information on the asset or liability one may rely on internal information to measure the fair market value, internal information involves the assumptions made by the business entity itself regarding its value of assets and liabilities.

Advantages and Disadvantages of Shared Licensing Ventures

Shared licensing provides leeway for technological growth in business by allowing multinational companies to share intellectual property and rights. The exchange of ideas and information between companies ensures that information can move freely between organizations for mutual benefit. This is strategic for further expansion of the business. Sharing licenses also increases the companys capability by ensuring access to a wide variety of information that may be useful in the business in terms of improving output, efficiency and quality of goods and services among other things. By sharing licenses, companies can reduce the cost of acquiring that license individually, affordability of a license is important for business acquisition and improvement. Sharing licenses also reduces risk of failure. By observing, the trend among companies that share a similar licence, one company is able to predict future transactions and in the process reduce the risk of failure. Sharing licenses is harmful for business because it compromises exclusivity and further makes a company lose its competitive advantage. When only one company has rights to a particular product, it has advantage over other companies because it is the only company in the market able to produce those goods and/or services. If the companies share licenses then they would all be in competition in the production of those goods and/or services. Sharing licenses makes it difficult for a company to protect its trade secrets and this will not optimize the returns on intellectual assets. Sharing licenses ventures makes entry and exit into the industry easy, which is good for new businesses but bad for existing businesses. From this discussion, I draw the conclusion that sharing licensing ventures is a win-win approach and is therefore better than license exclusivity.

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