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Misconceptions in Corporate Cost Control and Their Consequences Misconception 1: Distorted cost awareness Misconception 2: Weak understanding of cost-benefit analysis Misconception 3: Focus on cost reduction while neglecting cost avoidance Misconception 4: Insufficient support from employees for cost reduction efforts Misconception 5: Lack of strategic planning and guidance in cost control. In any case, for a company to survive and thrive, it must first generate profits; without profits, the company will lose its ability to survive. In different historical periods, companies have used various methods to calculate profits. Selling price = Cost + Profit (planned economy era). Selling price – Cost = Profit (market economy era). Selling price – Profit = Cost (Lean thinking/TPS). Using the cost-based approach helps to ensure the overall effectiveness of business operations. Methods of generating profit: Since the price of products is determined by the market, the level of costs directly affects a company’s profits. Only by continuously reducing costs can a company achieve good economic results. As is well known, the idea of purchasing raw materials at low prices and selling products at high prices is unfeasible, as prices are determined by the market. The cost depends on the manufacturing method; different methods require varying levels of cost. In the same industry, the costs associated with producing products generally consist of material costs, component costs, labor costs, energy consumption, and other factors. Some of these costs are relatively consistent across different situations, such as electricity costs and material costs. However, it is the difference in costs resulting from different manufacturing methods that constitutes the element of competition; a 10% reduction in costs is equivalent to doubling the company’s production capacity. We classify workers’ activities into 3 categories: Work: Activities that create added value. Labor: Activities that do not create added value but are necessary at the moment. Waste: Activities that neither create added value nor are necessary. Waste in the manufacturing process increases costs and reduces the benefits obtained by the company. Waste is manifested in repeated shipments, the disposal of defective products, and so on – things that anyone can understand at a glance. There are also situations where certain tasks that seem necessary, as well as the necessary equipment, inventory, and transportation means, become unnecessary tasks, unnecessary equipment, and unnecessary inventory once the manufacturing method is changed. Among all the types of abnormal costs, the two most serious forms of waste are: First, having too many employees; second, having excessive inventory. The ability to identify and eliminate these wastes reflects a company’s level of management competence.