Worplestrop Case Study Report - Essay Example

? Worplestrop Case Study Report Profit oriented businesses have a major task of production cost management for themto realize a maximization in their profitability and shareholders wealth. Therefore, cost determination is of fundamental in manufacturing firms and they need to employ various costing methods in order to reduce the costs. Cost accounting method of accounting is employed in this to achieve the aims. In doing this planning as a measure of review is established, in this case budgets will always be developed to show the stakeholder the progress level reached. The reports produced and provided will be of utmost importance in that they are employed in the evaluation of the performance of the business in place and as well to motivate the workers. Total production costs in any industry are the total cost incurred in both manufacturing and service provision. In the production process, various cost elements are normally involved: - These are material, labor and overhead costs including other relevant expenses (Polimeni, 2000). When all these costs are summed up, we arrive at the production cost of a product. The determination of material and labor cost is easy and quite simple since such costs are direct. While material costs are read directly from the receipts, labor costs are determined from the payroll sheets of the employees (Davis, 2005). The payroll indicates both the salaries and the expenses of the company employees in all the ranks. The challenging aspect of cost to determine involves those for the overhead and other expenses, the determination and valuation has posed a serious challenge to cost accountants (Polimeni, 2000). They have though employed various cost accounting methods to allocate such costs to the products to help in the product cost determination. Cost of products are fundamental for decision making purposes hence the need to find for the means of costing products. The following methods have therefore been devised to help determine costs of products:- First, cost of a product can be calculated using the marginal costing system (Davis, 2005). In determining costs using this system, variable costs are given a major weight to help in valuing products for decision making. Both the fixed and sunk costs are not integrated in this case since they do not affect the future decisions made given they are already incurred in the past. The reports formed based on this measure are only for use internally and not for external decision making purposes. Secondly, absorption or total costing method can also be used to value and determine the costs of products. Here as opposed to marginal costing, all the costs are summed up including the fixed costs and the sunk overhead costs. In the process of manufacturing, the products all these costs were incurred hence deemed valuable in product cost determination (Davis, 2005). This method is the mostly preferred even when determining selling prices of goods and services since it entails all the costs incurred and would give a fair selling price. The method aids the organization achieve a desired profit margin as they simply add it up on the selling price set. Additionally, activity based costing can be used to determine costs as well. This form of costing is used in the allocation of overheads, which are in turn summed up together with the variable costs to lead us to the cost of the product. Here, various cost drivers are use to allocate the overheads to their respective cost centers hence the method is important in charging costs to their respective activities. With decisions involving activities that should be done and those that need to be done away with in an organization, this method has been instrumental for managers of manufacturing companies (Davis, 2005). This realizes effectiveness and efficiency in an organization by the management through elimination and replacement of non-useful activities in an organization. Lastly, throughout costing can also be employed in cost determination. Though the method is highly under criticisms by accountant since it does not adhere to the general accounting standards and principles, it is still in use minimally. This method only considers material costs in its determination of total cost of a product while expensing all the other expenditure from the business revenues. The nature of this method does allow it for use in cost determination of products (Davis, 2005). Businesses are advised to plan for their future activities in order to be able to manage their costs and this is possible through a budget (Polimeni, 2000). The budget has the ability of enabling management focus on their expected future incomes and expenditures alike. The values from such calculations enables a business have a point of reference for future performance evaluations. A budget gives the whole organization a focus on the aims through coordination of all the departments towards a common purpose. A budget in organizations also facilitates control, which ensures that the actual occurrences are shaped to be in line with the budgeted values hence no deviation (Hayes & Ninemeier, 2012). Budgetary control through the stated control measures are undertaken to direct the organization towards its desired objectives. The first measure to allow Worplestrop partnership achieve its plans is by introducing budgetary control measure to guide the management in decision-making. The measures and techniques to be introduced entail - analysis of variance, cost centers introduction and forecasting (Hayes & Ninemeier, 2012). Variance analysis major goal is to measure the actual and compare them to the plans. Therefore, Worplestrop partnership has the obligation of constantly measuring the actual occurrences, quantifying them and then comparing them with the budgets to realize how a deviation has occurred. After this then the officers involved will be able to respond appropriately to correct the deviations through accurate decision-making. Forecasting on its part involves the use of various forecasting tools to predict how the organization is likely to perform in the future. This is achieved through thorough analysis of the previous performance, follow the trend and make future forecasts. When accurate forecasts are made, the organization is able to direct most of its efforts on the major activities that could lead it achieve its future objectives and hence cost management (Polimeni, 2000). To make the budgets work best cost centers have to be identified (Fitzgerald, 2002). This is because costs have to be incurred and revenues earned in any organization. The management of Worplestrop partnership has the obligation of ensuring that they put in place cost, revenue and profit centers to guide their operations. Cost centers should be geared towards cost minimization hence lowered costs. Measures to maximize revenues through well-established sales strategies must be established. The company should appoint officers that are responsible at their centers hence supporting overall goals. Any costing system must possess the ability to generate reports that can be used in decision-making. This is because all the three levels require reports to facilitate decision s made at each of the levels. Strategic managements are involved in top-level decision-making that affects the overall organization and are mainly directed towards the long-term goals of an organization. Their reports needs are therefore those to be used for evaluating the overall organizational performance, hence deal with external parties. They require reports such as; for profit percentage of the organization, revenue increase percentage reports, business market share reports, percentage total cost reduction reports not forgetting business strenghth reports verses those for the competitors. The reports for top-level management should be highly summarized since the managers at this level do not have all the time to go through details. In the middle level management, tactical mangers as well need the reports of cost statements. These are used to develop their respective departmental reports since they are interested in departmental performance. The need reports such as for cost reduction for departments, profit reports and reports indicating the performance of the department with respect to the other departments (Fitzgerald, 2002). The departmental managers have the basic roles of ensuring that their department’s performances are in line with the overall organizational objectives. Operational managers on the other hand have the obligation of running the daily operations of the organization hence require reports such as:- total quantity of products to be produced and those actually produced, reduction in material wastages reports, reports relating to the productivity of labor and also reports on overhead costs reduction (Fitzgerald, 2002). Employees are valuable resources to any organization and therefore should always be provided with the reports to motivate them and make them be informed. In their case, they need all the reports from all the levels of management so that they feel part of the process. Strategic reports inform them of the results and output of their efforts hence motivation while tactical reports enables them focus on contributions from the department (Fitzgerald, 2002). On demand, operational reports are also required by employees to increase on their effectiveness and efficiency. In summary, any form of management is involved with determining and management of product costs. Management control makes it possible for cost minimization to make Worplestrop partnership products to be highly marketable and competitive. In addition, the establishment of well-managed costing systems would enable the costs of products be effectively and efficiently managed and controlled. Employees of the partnership must also be exposed to the reports so that they know the performance of the company in order to work in unison for goal attainment. References Davis, D 2005, Business research for decision making 6th ed, Thomson/Brooks/Cole: Belmont, CA. Fitzgerald, SP 2002, Decision making, Capstone Pub: Oxford, U.K. Hayes, DK & Ninemeier, JD 2012, Foundations of lodging management 2nd ed, Prentice Hall: Boston. Polimeni, RS 2000, Product costing: concepts and applications (3rd ed.), McGraw-Hill: New York, N.Y. Read More