...1.0 Introduction Intense competition and pressure from customers to reduce prices has forced many companies to reduce their costs to survive. Automotive manufacturers such as BMW and Mercedes have found that most of their costs are committed once the production begins, and thus, the cost must be reduced earlier in the product life cycle, particularly while the product is in the planning and design stages. Mercedes Benz is a multinational division of the German manufacturer Daimler AG, headquartered in Stuttgart. The brand is often used for building luxury automobiles, buses, coaches, and trucks, widely known as one of the most established and oldest automotive brand in the world today. 2.1 Cost Management Techniques Adopted by Mercedes Benz 2.1.1 Target Costing Target costing prices are assumed to be set by the market on a competitive basis. In a market economy, values are defined by the users. As Mercedes move closer toward a global economy, prices increasingly become uncontrollable variables, while costs, because of technological advances, increasingly become controllable variables. When selling price and profit margin are fixed by competitive pressures and management policies, respectively, reducing the firm’s production costs may be the only source of increased earnings. Mercedes Benz, one of the worlds most prestigious and tradition laden car makers, has taken its time to wake up to the daunting dimensions of the challenges it faces in the rapidly changing world...
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...John Molson School of Business Strategic Management and Cost Management Concepts April 8, 2010 Section G Table of Contents Introduction 2 1. Overview of Cost Management and Strategy 3 2. Implementing Strategy 5 3. Basic Concepts 10 Conclusion 14 References 15 Appendix I: Product & Period Costs 18 Appendix 2: Balanced Scorecard 19 Companies are constantly trying to improve their business and the quality of their products. While Marketing and Operations Management are two departments that aid in improving a company’s business, the accounting department plays a major role in this transformation as well. Considering the managerial aspect of accounting, a lot of what it takes to improving ones business is cost management and strategy. Strategic and cost management are essential to any business as they provide the foundation for determining problems and improving quality. Strategic and cost management concepts can be broken down into three parts: the overview of strategies that can be used, the ways to implement these strategies and the cost concepts that can be used to manage costs. 1. Overview of Cost Management and Strategy There are several cost and strategic techniques that can be used to improve a company’s overall position. These techniques, however, are within broader topics, such as the business environment, management techniques and competitive strategy. Firstly, a changing...
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...STRATEGIC MANAGEMENT AND COST MANAGEMENT CONCEPTS Introduction The concepts of cost management and strategic management are the foundations for managers. The growing pressures of global competition and technological innovation have made cost management more critical and dynamic than ever before. Now cost management has moved towards a broader strategic focus than that of product costing. This so-called strategic cost management needs to facilitate strategic management in order to allow the firm to retain its competitive advantage. In order to implement this, benchmarking, value chain, balance scorecard and SWOT analysis should be undertaken. A firm should then identify its strategic positioning in the market: how it will sustain a competitive position. Furthermore, the strategic role of cost concepts will also be described in relation to product/service costing, strategic decision-making (cost driver analysis), planning/decision making and control/feedback purposes. Costs are now more complex than ever since large companies like Proctor & Gamble have a large product portfolio, and costs have become a vital element of a firm’s strategy. In order to understand these concepts fully, we will relate them to real businesses; in particular, we will analyze these concepts with relation to the McDonald’s corporation. Strategic Management Strategic management is the conduct of drafting, implementing and evaluating cross-functional decisions that will enable an organization...
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...AN OVERVIEW OF STRATEGIC COST AND MANAGERIAL ACCOUNTING Nasser El Chayeb Indpendent Consultant In the past few decades technology was developed in a rabid manner affecting sharply human beings lives at all levels and aspects touching on all areas of human activities and changing our views, ideas, believes and values from what existed before the Technological Revolution to what we are standing at now. The advanced technology has connected different people with different backgrounds and from different parts of the world together and made it much easier to exchange information & experience leading to enormous changes in the globe which became as a small village. This advanced technology as we said has affected almost every aspect of our life from getting the people from different parts of the world closer, to the dramatic increase in production of material and services to overtake demand level leading to enormous reduction in prices and firing the spark of competition in the globe open market to the max. In the other hand prices dramatically increased for raw material being with limited resources which started to be consumed by at a high rate by the incredible increase of production resulted from advanced machinery. A conflict started to shape between the benefits of the advanced technology, and the economical results of this technology revolution, putting...
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...Cost, Budgets and Strategic Decision Making in Management Accounting Answer (a) Budgets can be characterized as a quantitative explanation, for a certain time period, which may incorporate arranged incomes, cash flow, costs, resources, and liabilities. Budgeting alludes to the procedure of outlining, actualizing, and working budgets. Budgeting, as a control device, gives an activity plan to guarantee that the association's real exercises are slightest digressed from the planned exercises. Budgets are utilized to give an outline of the organization and procedures performed in it. They are helpful in asset allocation where assets are distributed in such a route, to the point that the techniques, which are relied upon to give the most astounding returns, receive top priority (Libby and Murray, 2010). Budgets are additionally forecast instruments and bring about a significant improvement readied to adjust to changes in business atmosphere. They ought to be produced in such a route, to the point that they consider the key necessities of each of the functions. Budget detailing comprises of an arrangement of exercises: a budget department is created in which a budget controller is appointed, strategies are developed for budget readiness, budget recommendations are created at the department level, the budget is developed for the whole company, financial backing period and key budget elements are decided, the budget is evaluated and approved, growth is observed, and the budget...
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...Berkshire Toy Company case questions 1) Using the variance analysis framework developed in class, perform a revenue variance analysis for (i) retail & catalog revenues, and (ii) wholesale revenues. For each analysis, report all five variances (total, activity, mix, price, and revenue), and label each one as either favorable (F) or unfavorable (U). (No label is needed if variance is $0.) Budgeted Sale Mix: Retail & Catalog = 238,000/280,000 = 85% ($49.00) Wholesale = 42,000/280,000 = 15% ($32.00) Actual Sale Mix Retail & Catalog = 174,965/325,556 = 53.74% ($49.00) Wholesale = 45,162/ 325,556 = 13.87% ($32.00) Retail & Catalog Revenues: Wholesale Revenues: 2) Using the information below, calculate the bonuses earned by David Hall, Rita Smith, and Bill Wilford. David Hall’s (Purchasing manager) bonus = 20% Net Materials Price Variance (if the variance is favorable) Net Materials Price Variance = $20,428 F + $25,181F + $48,183F +$6,317F - $26,946U = $ 73,163 F David Hall’s bonus = 20% x $73,163 = $14,632.6 Rita Smith’s (Marketing manager) bonus = 10%(Act. Net Revenue – Budg. Net Revenue) = 10% x [($14,446,487-$1,859,594-$5,023,192) - ($13,006,000-$1,218,280-$4,463,000)] =10% x $238,981 =$23,898.1 Rita Smith’s bonus = $23,898.1 Bill Wilford’s (Production manager) bonus = 3% [Net Efficiency Variance (materials, labor, variable overhead) + Labor Rate Variance + V&F Overhead Spending Variances] (if favorable) Net Production Efficiency Variances...
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...Efficiency enhancement has been a challenge for banks all over the world since years ago. It is proven banks which focus on efficiency enhancement are more organized to fund investments and will benefit from a greater stock-price growth. To improve efficiencies, banks have to carry out an enterprise-wide approach which is time-consuming and may require a change in culture. Besides budgets reduction, processes improvement, freezing expenses and headcount, and reduction of contractors on external, banks are looking forward to improve their performances and qualities time-after-time. There are numerous ways to boost banking sector’s efficiencies in Malaysia. Firstly, restrictions on salaries and staff mobility in banking industry can be removed as workforces are claimed to be the most important asset in order to develop a banking system efficiently and effectively. The ability of attracting and rewarding the best people according is needed to make a successful banking institution. However, in key areas like systems development and risk management, there is still a lack of specialized senior talent in this field. The best talents need to be attracted in order to enhance the efficiencies of domestic banking institution and this talents include workforce that have gained more skills in the more developed financial markets. To improve staff mobility, banks should undertake efforts by building efficient methods for sourcing for new talents and redistribution of staff. Although this...
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...process for Department of Education NL, there are three key elements involved: extending the use of agreements based on whole-life costing; progressively reducing transaction and process costs, and the provision of more qualitative added-value service. The concept advances Cooperative purchasing from a reaction to outside forces or top-down pressures, to a supply methodology congruent with an overall business strategy. Based on a detailed research and analysis, we have come to a conclusion that forming a strategic coalition with ISI (Interuniversity Service Inc), a not for profit organization that is currently responsible for all Education related procurement for Atlantic Canadian provinces except NL will solve the major issues discussed above and will provide more value to NL’s educational structure and at the same time will reduce overall operational and overhead costs. ISI provides strategic sourcing approach towards procurement by operating based on Total Cost of Ownership model and by bulk commodity and services purchasing provides Total Landed cost strategy to the business. Being a not for profit organization, their True north is to serve the community and creating a better Educational structure in Atlantic Canada. They have demonstrated their ability to add value, reduce cost and therefore providing excellent services within a specified budget to all the other provinces in Atlantic Canada, which has proven...
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...393; dividing by the total direct labor of $14,102 gives an overhead rate of 563%. Next, we will need to calculate the overhead for each product using the overhead rate from each model year. Adding the material costs and labor costs to the total overhead gave us total costs for each product in each year. The selling price less the total costs gives us the profit for each product. To find gross margin as a percent of selling price we divide Profit by selling price. 4. Are the product costs reported by the cost system appropriate for use in the strategic analysis? The product costs used for the strategic analysis were appropriate. The company’s cost system produces manufacturing cost reports using full factory costs. The product costs used in the study were taken from these manufacturing costs reports, with details provided by the facility’s financial personnel. OR: The product costs were appropriate because the costs used for the study were total full factory costs based on examination of real manufacturing cost reports from the cost system. However, the comparative competitive costs cannot be fully verified since it was mainly subjective based on tours and interviews. With the information collected, they came up with the best assumption for the correct competitive costs. 5. Assume that the selling...
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...Business Press article, the co-authors of the Blue Ocean Strategy book, W. Chan Kim and Renée Mauborgne explain the importance of alignment across the three strategy propositions of value, profit and people propositions, regardless of an executive's strategic approach to strategy. In choosing which of the two is most appropriate for your organization, you need to consider environmental attractiveness, the capabilities and resources you can call on, and whether your organization has a strategic orientation for competing or for innovating. Whichever type of strategy is chosen, success will depend on creating an aligned set of strategy propositions targeted at three different sets of stakeholders: buyers, shareholders, and the people working for or with the organization. This article builds on the concept of value innovation, the concept of being able to increase value while reducing costs at the same time. This article was referenced by Paul E. Kmen in his paper on how companies can break the trade-off between improving the sustainability in their offerings versus the higher costs associated with becoming a truly social responsible company. The paper illustrates how becoming environmental-friendly can actually lower the production costs by reducing the inputs used. By not taking the structure of the operating environment as a given, a company may generate additional revenues from better products and create new businesses by taking a reconstructionist approach to strategy. This article...
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...situation by implementing this assessment method. However, to a large extent, evaluating a supplier’s overall quality on its lowest performance is not comprehensive, and may cause the loss of some great suppliers. For example, based on the poorest performance, Midwest Bearings gets lower overall rate than New England Works because of the relatively lower rate of delivery and technical support. However, Midwest Bearings does really good job at cost management, which is one of the critical elements that Heartland & Company looks for. In that case, the buyer should not eliminate the name of the supplier out of the list immediately. In my point of view, evaluating one company based on one dimension is not a rational idea. Firstly, different buyers should develop different evaluation systems to opt for their best-fit suppliers. Specifically, the Heartland & Company focuses more on cost reduction that their suppliers are able to conduct. Thus, the company should consider The Midwest Bearings as one of its suppliers, since it is good at cost management, even though it does...
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...and develops through the stages of cooperative contracts and strategic alliances to wholly owned affiliates. The simplest stage of the model is exporting and it is the least costly way for a company to initially take its product to a world market. The exporting stage of the phase model is when companies make something in their home country and sell it overseas. One of the advantages for exporting is that the company becomes less dependent on its home market for sales. By selling overseas the potential market is bigger. One disadvantage especially for a country like Australia is that shipping costs add to the price that a company has to change for its products overseas. Another potential disadvantage is that foreign governments might charge tariffs on imports which can also make them more expensive. The cooperative contracts stage of the phase model is when a company makes a deal with a similar business in a foreign country that gives them the right to make their products. Two types of cooperative contracts are licensing and franchising. One advantage of this stage is that the company does not have to pay shipping or face tariff barriers. Strategic alliances are formed when companies combine to share resources. The most common form of strategic alliance is the joint venture company. This is where two or more companies combine to form a new company. Joint venture companies have the advantage of avoiding the cost of shipping and tariff barriers by making their products in...
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...Abstract Every organization will utilize numerous strategies, data analysis, and effective communication to incorporate quality and ethics. This paper highlights the importance of Total Quality Management as it relates to business ethics, the value-chain, and regarding executional and structural cost in four scenarios. The four scenarios discuss HighTech’s COO ethical issues, Harley Davidson’s value-chain, Bikes.com executional cost drivers, and Food Fare’s structural cost drivers (Blocher, et al., 2013). All are techniques in which management creates policies and procedures that will guarantee that their products and services will exceed customer’s expectations (Blocher, et al., 2013, p. 13). Problem: 1-33 (HighTech, Inc.) As the Chief of Operations (COO) with HighTech, my main focus should be on the finances of the company; unfortunately, due to the defective memory chip there are some issues that the company will face. For example, product defects, warranty costs and product recalls are a part of the TQM process that HighTech will have to deal with if and when management decides to recall or replace the defective product. Therefore, ethics is critical to the success of any business and as the COO, I have a responsibility to the company in which I work for. The IMA Statement of Ethical Professional Practice has rules and regulations that must be followed to maintain ethics in the business. For instance, professionals must maintain competence, confidentiality, integrity...
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...how business works outside of academia. There isn’t a cookie cutter solution for procurement or any business process. As an executive one must be vigilant and sensitive to the changes in the market and the constraints imposed on the supply chain. Question 1 As always, we will build a base-model to understand the main thrust of the problem by relaxing some considerations (constraints). For example, for now, we will ignore the constraint of the number of winning bidders and/or maximum total winning bids by each suppliers, and tie-breaking (first bidder wins) constraints. Formulate the multi-item allocation problem that determines the winner of the combinatorial auction. Under the optimal policy, who supplies what? What is the resultant cost? Do you need to impose integer constraints? What to submit: Write your answers on a word file. Also, submit an Excel model showing your...
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...of an organization’s end product minus the operating profit to establish the target cost. c. starts with the selling price of an organization’s end product minus actual manufacturing, overhead, and materials costs to determine operating profit. d. starts with the supplier’s price, and works to determine the supplier’s true cost structure. e. starts with the buyer’s lowest reasonable price target, and works to a negotiated price agreed on by the buyer and the supplier. 2. Activity based costing attempts to: a. correct the distortions built into product costing by the way that direct costs are allocated. b. correct the distortions built into product costing by the way that the learning curve is applied to direct labor costs. c. turn indirect costs into direct costs by tracking the cost drivers behind indirect costs. d. turn direct costs into indirect costs by tracking the cost drivers behind direct costs. e. introduce a new way to allocate direct costs that more accurately captures labor and material usage. 3. An externally focused process of analyzing costs in terms of the overall value chain is called: a. strategic cost management. b. supply chain management. c. total cost management. d. profit leverage effect. e. activity based costing. 4. Target pricing may result in companywide cost reductions in: i. design to cost. ii. manufacture to cost. iii. purchase to cost. iv. a and b. v. a, b, and c. 5. Sources of...
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