Planning and Controlling Direct Labor Costs - Term Paper Example

Planning and Controlling Direct Labor Costs Introduction In this age of competitiveness and economic disparity, the most essential requirements of an organization are to improve the productivity and profitability, by controlling its total cost. Only then, the organization might become successful in amplifying its brand image and reputation in the market among many other rival players. However, in order to control the cost of the product or inventory, it is extremely essential to perform extensive planning. This might prove effective for the organization, in enhancing its selling cost that may reduce its production cost and actual cost. As a result of which the total revenue and total sale of the organization might get increased that may amplify its market share and brand value to a significant extent among others. Apart from this, if the organization became successful in reducing its actual cost, then it might present its product or services at a quite competitive cost as compared to its rival players. However, due to which, a huge range of customers might get attracted towards the brand and the product line that may amplify its demand and profit margin in the market among many other rival players (Hansen, Mowen and Passalacque 29). Thus, it might be stated that in order to enhance the range of profits of the organization by a consistent range, planning is the most essential facet. In order to enhance the sustainability and position in long run, the organization might plan for long term strategies. It might prove effective in increasing the overall costs and revenues thereby reducing the total costs. Importance of the study The importance of the study is to analyze the importance of planning for an organization in this age, in order to amplify its total revenue and reduce the total cost. This might act as the first stage of budgeting that may prove effective for the organization to forecast its future expected sales, earning, expenses etc. Along with this the process of planning and staffing also includes the future forecast of the changes of the business and economic environment that may offer significant impact over the operations and functions of the organization. Along with planning and staffing, forecasting is another important step of budgeting, that helps to determine, the degree to which the long term strategies are useful or feasible for the organization in long run. However, this process of forecasting is a mixture of two important functions such as planning for long period of time entirely based on real goals or objectives of the organization as well as short term planning’s. Therefore, by doing so, an organization tries to utilize its available assets in an efficient way that may increase the profitability and portfolio in this aggressive age. Other than this, by performing the activities of future planning or forecasting’s for longer period of time, the organization might successfully cope-up with varied challenges such as inflation, demand variations, supply differences, shortage of employees or labors, improper educational qualifications of the employees, improper machines, unhygienic work place, improper organizational culture, regulatory changes, interpersonal conflicts among the management and employees, attritions, improvement of the demand of the products of competitors etc. In such unpredictable times, the organization might easily tackle the changes in an effective way that may enhance its profitability and rankings among others. Thus, the unknown factors might be easily resolved with the help of budget. Budget is an elementary tool that helps an organization to make varied types of necessary changes so as to attain benchmarking productivity (Walter and Skousen 71). However, by doing so, the organization might become successful in tackling the alternative preferences of the customers in an effective way, so as to increase its reliability and dependency in the market among others. Moreover, by presenting varied types of new product lines or services with the help of experienced employees and machines, the demand and range of customers might get enhanced thereby amplifying its distinctiveness. Hence, it might be stated that with the help of this study, the necessity and importance of budgeting, planning and forecasting might be analyzed for an organization in this competitive age. This is because; without performing all these above mentioned functions, an organization may not become successful in operating its functions in an effective way by utilizing its available resources in an efficient way. Objective of the study The objective of this study is to analyze the ways by which, a commercial organization might utilize its resources to exploit the available opportunities of the market. However, in order to do so, it is extremely essential to tackle and control its resources in an effective way so that, it might be used to enhance its productivity and profit margin in long run. Moreover, if the profit margin of the organization enhances with a consistent rate, then it might prove effective for the association to increase its assets and resources to a significant extent. By increasing its resources, it might improve its rate of productivity and demand that may amplify its total sale and revenues in the market among others. But, in order to increase its productivity and range of available resources, budgeting is the most essential requirement or technique. It is considered as one of the evaluation tool that may be used to analyze the required resources in future era, so as to tackle the changing needs of the customers or situations such as change of per capita income of the customers, change of buying behavior, change of preferences etc. However, in order to tackle such type of changing situations, budgeting and planning is the most vital element for an organization. In order to retain the position and demand of the product lines or services of the organization, the prices need to be reduced to a considerable way (Walter and Skousen 142). Only then, the buying behavior of the customers might get enhanced along with the profitability of the organization. But, in order to do so, the cost of the resources used to prepare the product lines also need to be reduced so as to suit the budgeted selling price. Along with this, budgeting is a sort of planning process that helps an organization to accomplish the future goals such as: The amount of revenue required to produce the products The amount of revenues required to administer the operations of the organization The amount of revenues required to improve the machineries and facilities of the organization (Hansen, Mowen and Passalacque 84). The amount of revenues required to promote the products of the organization etc. However, if all these above mentioned objectives and goals of the organization might be evaluated systematically, then it might surely present positive results in future era. This might improve the competitive position and demand of the products of the organization in the market that may amplify its prosperity and brand image among other rival players. Moreover, if the organization becomes successful in amplifying its financial goals then it would surely increase the fridge benefits and incentive rates of the employees as well. This would increase the motivation and devotion rates of the employees that may amplify the performance of the organization in long run. Analysis or Comparison Definitions of planning, budgeting and control Planning is a process that helps an organization to develop long term strategies and financial goals so as to improve its status and position in long run. The strategies or plans might include, product mixes, market share, sales volume, number of employees, research and development, amount of resources, advertising campaigns, machinery implementation cost, training and development, recruitment and many others. By analyzing about the above mentioned required resources, the organization tries to strengthen its inner resources that may easily tackle the alternating situations and threats. However, by controlling the threats, the organization might become successful in amplifying its brand value and profitability to a significant extent thereby increasing its up-coming opportunities (Hansen, Mowen and Passalacque 96). Budgeting is described as a plan prepared prior to a specific period of time. It is developed in order to improve the future income of the organization by curbing the amount of expenditure so as to attain advantage. This is done, in order to control the use of the resources in such a way that may offer extraordinary outcomes at lowest cost. This might prove effective for the organization to amplify its total sales and revenue thereby reducing the amount of cost incurred (Walter and Skousen 48). Controlling is defined as a process that may be used by the organization in order to control its resources to accomplish the future goals and objectives. For example: in order to accomplish the financial target, the organization desired to reduce its overall expense over the labors. By doing so, the organization might become successful in implementing varied types of advanced machines that may develop products in huge way so as to fulfill the demand in the market. In this way, the organization might become successful in amplifying its profitability and total revenue thereby reducing its direct labor cost (Bragg 51). Benefits of planning and controlling Reduction of the threat of up-coming problems: with the help of proper planning and controlling, the organization might easily get rid from varied types of issues such as unavailability of labors, inflation, attritions etc. As a result of which, the organization may not face the threat of above mentioned issues due to extensive planning process. For example: attritions of labors, at times of inflations. But in order to fulfill the required vacancy, the organization might recruit numerous other available labors at a quite low cost rather than, presentation of higher fridge benefits to the present ones. This might reduce he direct labor cost of the organization. Coordinated activities: due to proper planning and controlling, the level of coordination of the activities within numerous specific segments such as product mix, promotion etc. By doing so, the amount of extra expense might be reduced to a significant extent as compared to many others (Bragg 54). Improvement of performance: if all the activities of the organization are properly planned and controlled then its level of performance and productivity might surely get enhanced to a considerable extent. For example: if the organization offers wages as per the qualifications of the workers then their level of devotion might surely get enhanced that may improve its performance and efficiency. However, due to improvement of the level of devotion, the profitability of the organization might get enhanced, without hiring any extra labor at time of extensive demand of the products. Therefore, in this way, without offering extra cost to the labors, the demand of the product might be met in the market. Benefits of budgeting Gives a way to control the revenue: with the help of budgeting, an organization might surely cartel its extra costs such as advertising, promotion etc. By doing so, the organization might improve its profits thereby reducing its expenses. With the help of that saving, the organization might increase its resources such as labors, machines etc. Helps to organize the expenses: if the expenses of the organization might be categorized then, it might be organized. However, by organizing the expenses, the amount of extra cost may be reduced to a significant extent (Walter and Skousen 79). This procedure might prove effective in reducing the amount of extra cost spent over labors and machines. But planning and controlling may not offer such above mentioned results as it is entirely based on forecasting and assumptions. Enables to improve the amount of profits: with the help of budgeting procedure, the unnecessary expenses might be analyzed but it may not be possible through planning or controlling process (Bragg 61). Thus, it might be revealed clearly from the above mentioned points, that budgeting is more effective process rather than planning and controlling the amount of direct labor cost as in budgeting, continuous comparison takes place among desired and actual results. This might prove effective for the organization in knowing the amount of the inner skills and talents of the employees required to produce the desired products. However, after their skills, the organization may decide, whether any sort of training or developmental programs is required or not. As a result of which, with the help of budgeting, the amount of extra cost spent over direct labors might get reduced. By reducing the direct labor cost, the profitability and productivity of the organization might be increased that may prove extremely effective for it in long run. Due to these above mentioned reasons, budgeting is recognized much more effective in this age rather than planning and controlling the direct labor cost of an organization (Bragg 87). Hence, it might be stated that budgeting helps to improve the motivation of the organizational management to achieve the designed targets of future era. However, it might be effective, only if all the members of the organization participate solely in the planning process of budgeting. Conclusion Conclusively, it might be stated that the direct labor cost of the organization might be reduced or controlled only through extensive planning or budgeting process. This is because; in this process, the members might compare the actual results or requirements with the desired results and might easily attain anticipate the future results. Apart from this, the organizational members might make effective planning’s so as to reduce the extra cost such as machinery cost, advertising cost, promotion cost etc that may increase the total profitability and revenue of the organization as compared to other rival players of the market. Thus, with the help of planning and controlling process, the organization might enhance its brand value and market share to a significant extent in this age of high customer bargaining power and competitive rivalry. So, these process act as one of the most important evaluative technique in reducing direct labor cost within an organization. Works Cited Bragg, Steven, M, “Controller's Guide to Planning and Controlling Operations, 2005”. New York: Cengage Learning. Print. Bragg, Steven, M, “Accounting Policies and Procedures Manual: A Blueprint for Running an Effective and Efficient Department, 2012”. US: John Wiley & Sons. Print. Hansen, Don, Mowen, Maryanne and Passalacque, Daniel, “Controller's Guide to Planning and Controlling Operations, 2007.” London: Sage. Print. Walter, Larry, M. and Skousen, Christopher, J, “Budgeting and Decision Making, 2010”. London: Sage. Print. Read More