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.

Change the basis of payment:
Change the basis of the variable payment

No. Industry SIC Year Notes
1 5511 2006 Used-car specialist CarMax has been adding stores at a steady pace. CarMax deals mostly in lower-mileage used cars. Sales reps don't have an incentive to push buyers to a higher-priced car because they get paid by the number of cars they sell – not the price of the cars they sell. The formula has helped CarMax post six straight quarters of double-digit sales and profit growth. Sales hit $1.6 billion during the fiscal fourth quarter, which ended in February. That was up 16% from the prior year. Full-year sales moved up 19% to $6.3 billion.
2 5731 2004 J&R, apart from the agreement with, also links up with other sites through its affiliate marketing program. The difference is that instead of paying for clicks, J&R pays only when a customer completes an order. "The advantages are that you get free brand exposure and you only pay on a performance basis."
3 7389 2006 A growing number of consumer-products and -services companies, from Office Depot and J.Crew to Wyndham Hotels and Sears Holdings, are outsourcing work to people in their homes. The pay for home agents is limited. The most a full-time agent usually makes is $25,000 to $40,000 a year. Agents are typically paid by the call or by time spent talking, usually amounting to $8 to $18 an hour, plus incentives for selling products and services. The work can be wearying, repetitive, and stressful. Most home agents are independent contractors, lacking benefits. Workers must equip themselves with a computer, costing about $600, plus a phone line and internet access.
4 8082 1997 Importantly, the company has been able to make adjustments to its captitated relationship with Cigna — a contract that covers more than 3.5 million lives — so that certain specialty services are reimbursed on a fee-for-service basis, improving the profit.

<<Return to Reduce the Rate of Cost