Reduce the Rate of Cost for the Input Used to Product 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. This approcah makes cost more variable.
|1||1041||1993||Miners at Barrick can earn an extra 10% above their average annual salary of $40K if they meet monthly production quotas.|
|2||2844||2005||Avon has recently tried advertising through affiliated web sites. Avon pays these affiliates each time a consumer passes from their site and makes a purchase on Avon's site.|
|3||3500||2006||Germany sees job gains due to the increased flexibility by Europe's labor. HAWE Hydraulics of Germany has decided to build a new factory in Germany, a rarity in the country. To avoid losing more jobs, HAWE's workers hammered out new labor agreements with management that includes Saturday shifts, flexible work hours, and profit-sharing in place of fixed bonuses.|
|4||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.|
|5||4213||1998||All regular workers will be entitled to a $750 signing bonus. That will be in lieu of any increase in wages or fringe benefit contributions in the first year of the five year contract. Roadway intends to amortize this payment.|
|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. Clarian Health will charge employees who smoke $5 a pay check.|
|7||7841||2001||Blockbuster, the 7,781-store video rental chain, is threatening to end some of its rental-revenue sharing programs with Hollywood studios. Since the deals were negotiated in 1997, sales have jumped 14% annually for the company. Studios have raked in 40% of each video rental. The older system allowed for the rental stores to buy tapes for $65 each and get an exclusive rental window; this caused stores to under-order which hurt business.|
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