Reduce the Rate of Cost for the Input Used to Produce the Output

Use the same type of input and the same activities, but pay less for the unit of input employed in producing the output. A reduction in rate is equivalent to a reduction in the number of inputs for the same ICD. For example, if a person who makes $10 per hour could produce the same amount of output as a person making $20 an hour, the substitution of the $10 person for the $20 person in the process would be equivalent to cutting the number of people required to do the work by 50%.

C. Change the components of the rate of costs to reach a lower total rate:

Sometimes it is possible to break the price of a purchase into its component parts. Then the company may seek to substitute a less expensive component for a more expensive component to reduce the effective rate the company pays on its purchases.

Optional components of the rate paid: Penalty/bonus, including equity and profit sharing: Add bonus/penalty for performance:

No. Industry SIC Year Notes
1 2711 2007 As insurance costs rise, some companies are penalizing workers for their unhealthy habits. Businesses are deducting from employees' paychecks and adding insurance surcharges to high risk workers and offering discounts to low risk ones. Workers at Clarian Health will reduce the paychecks of those with high BMIs by $10 per month. Workers will face an annual health assessment and can appeal if their weight improves. They often provide wellness programs and workout facilities. Those with certain diseases can participate in management programs.
2 3639 2001 General Electric doesn't offer "standard" raises anymore but a lot of other companies do. A new trend of standard pay cuts, pay freezes, and reduced bonuses is emerging as the market weakens. Companies that use this approach include Agilent Technologies, Tribune Co., and DiamondCluster International.
3 3711 2005 Toyota has created its own new economy-class drug plan. For medications taken on a regular basis, employees can save by using the company pharmacy or a mail-order service. Toyota will try to get employees to buy higher doses of medications and ask them to split the tablets. And the company will pay for the entire cost of some medicines if the employee uses a generic instead of a brand-name drug, in which case the employee may have a co-pay as high as 20%.
4 5141 1990 A few powerful grocery wholesalers have demanded within the last year that food companies (their suppliers) pay a "failure fee" if a product does not sell an agreed-upon number of units within six months. Responding to oversupply of new products.
5 6022 2004 On every dollar Corus Bankshares lends out, 51 cents is coming out of its pocket. Therefore, Corus makes sure all its loans are high quality. Its bonus plan provides plenty of incentive to focus on quality. Lending officers get half their bonus when new deals get done. The other half foes into a pool that pays out over the next 10 years. If losses hit, the money to pay them off comes from there first.
6 6321 2007 As insurance costs rise, some companies are penalizing workers for their unhealthy habits. Employees who are overweight, smoke or have high cholesterol or who do not participate in wellness programs will pay more for health insurance. Tribune Co. will apply a monthly surcharge of $100 to family premiums of workers or dependents who use tobacco.
7 6324 2007 While most health plans charge members more when they visit out of network doctors, UnitedHealth Group went a step further, instituting fines for doctors who referred patients to out-of-network laboratories. UnitedHealth negotiated an exclusive deal with Laboratory Corp. of America and expects doctors and patients to take advantage of cut-rate fees. Doctors who failed to comply would be charged $50 fees, find their payments cut or be ousted from the network. UnitedHealth claims that the measure is designed to protect patients from higher fees charged by out-of-network labs. However, the move may face legal challenges and some doctors feel that Laboratory Corp of America does not always provide the most accurate results for certain tests.

<<Return to Reduce the Rate of Cost