Descending The Production Of The Commodity Accounting Essay

Published:

This essay has been submitted by a student. This is not an example of the work written by our professional essay writers.

As you know that the report which is prepared for the director of a company named Manac plc, which making and sells different types of standard electrical commodities. Which Production and sales take place crosswise a number of countries.Strategic management accounting, is typically done in bigger companies. It involves an accountant - to get aware and trying to analyze the contact of future strategic decisions. Basically the purpose of this report is to how our company (Manac plc) discover and use strategic management accounting for betterment of the company(Manac plc) in all over the world, and how company(Manac plc) will go with a high profit level. The purpose of this report is to focus and understand and analysis the agenda involved in the Manac plc where the company is not fulfilling its target profit. So this is a serious point where management of Manac plc should realize and evaluate the key strategic management accounting models and concepts which may affect the decisions; related to product's cost and price. Indeed Manac plc company currently use traditional management's accounting concepts such as- standard costing and absorption costing methods, as a part of this pace to strategic management accounting.

Pricing decision 

Pricing decision is the most difficult way and challenging process because there must be maintain some factors for the manac plc's benefits if the price of the products set too high then the customer will not buy the product due to the out of the range and then the customer automatically go to another competitor. It is the simplest way make a price decision analysis. We should make the pricing decision there should be consider the some important factors.

the main Problem occur between desired profit and price of goods sold, it can vary as the rise of sales and decline of the sales volume. So, the Common factor such as cost information, product's quantity, and time period of selling products. there are two parts of pricing decision are incurin short run period there are price of product should be fixed for real time. In short run for manacplc which have at least one factor of product of the commodity and others will be variable amount. A manacplcproducing can make three changes in the short run.

Expending the production of the commodity

Descending the production of the commodity

Closure

In the short run there are some factors a profit-maximizing the manac plc. Increase the production of the commodity, Decrease the production of the commodity and continue manufacturing if average variable cost is less than price per unit and even if average total cost is greater than price so downstairs if average variable cost is greater than price at each level of output and In the long run manac plc change manufacture levels it is happen when the economic goes down and company on loss, this means according to the expectation there no profitability . A manac plc can formulate these changes in long run for the betterment of his estate. Enter an industry in response to (expected) profits, leave an industry in response to losses, increase its production in response to profits, decrease its production in response to losses.

The manacplcManagers should start setting prices avail that type of approaches and strategies during the adding stages of the production of the product as a part of strategic pricing to avoid launching products or services that cannot sustain profitable prices in the market. Through systematic pricing policies and strategies the manacplccan acquirehigh profits and increase or avert their market shares.pricing policy will vary and give instruction that how the manacplcsets the prices of its products and services according to the costs, value, demand, requirement and competition. Through this Pricing strategy, the company can achieve the goal and profitability.The following sections explain various ways manacplc develop pricing policy and strategy.The purpose ofCOST-BASED PRICING is to evaluate the all certainty, constancy , conviction Which are related to the products and services after all the cost of the product will be analyze and calculate for desire profit margin of each unit. The purpose this approach to cover the all cost which is applied for the production and after gain the required profit. VALUE-BASED PRICINGthe company should compare their own product to the other competitors to know the what is the strength and weak points. Basically it is the part of market research. value-based pricing is not just creating customer satisfaction or making sales because customer satisfaction. This approach to pricing also depends heavily on strong advertising for manac plc.

DEMAND-BASED PRICINGapproach is basically not concerned with the cost of the product it is the part of the absorption of the customer attitude and what are they demanding for the product. So there that the company should fulfill the all need for every customer. The company should focus on the level of the customer demand for product.COMPETITION-BASED PRICINGa company sets its prices by determining what other companies competing in the market charge. A company begins developing competition-based prices by identifying its present competitors. STRATEGIES FOR NEWPRODUCTS pricing strategies frequently depend on the stage a product or service is in all over the procedures which is new products.FOR NEW PRODUCT PRICING STRATEGY,ESTABLISMENT OF PRODUCT PRICING STRATEGY,MARKET SEGMENTATION.Penetration Pricing purpose to attract the customers by using different promotions of the products in the market like to getting the customer attention the company can offer the prices of the product very low for the promotion of the product through this the customer will aware of the product Penetration pricing can be a successful marketing strategy when applied correctly. It can often increase both market share and sales volume. It will high sales volume can also lead to lower production costs and higher inventory turnover both of which are positive for any firm with fixed overhead.Adopting the penetration policy a producer keeps the initial price at an all time low this acts a deterrent to competitors from entering the market. The competitors unable to further lower the price of their product either leave the market or stay away from it.

Standard Costing and Variance Analysis

STANDARD COSTING

According to the standard cost the manacplc should be believe to produce goods and services under some rules and conditions the purpose of this system to comparison between the standard cost and actual cost which will be the primary benefit. Standard cost and budgets There is only difference between both that is the cost of one unit and total number of unit. Variance AnalysisManacplc should also analysis of standard cost between the originalcost because that is the important part of the company to reduce the expense or losses and gain the profit.An analysis between a standard cost and actual cost is avariance analysis there are some components. Direct materialFor this need material price and materials quantity variance, Direct laborFor this need labor rate (price) and labor efficiency (quantity) variance, overheadfor this need over head volume variance and controllable overhead variance.Value and Limitations of Standard Costing and Variance AnalysisThe time and constant report which are almost correct are better than not happening in regular reports that are very short but out of date by the time they are released, If the variance are used as a golfing tool, assistant may be tempted to cover up unfavorable variance or take actions that are not in the best interest of the manacplc company to take variance are favorable , For the development of the company in good manner the labor quantity is the most important part also the efficiency variance which is part of production process is labor placed and other is computation assume that labor is variable cost, Some how some time variance can be favorable or some time may bad, There are so many affections with standard cost reporting systems and arrange the meeting for maintaining the quality of the product for customer satisfaction, To survive in the current situation of competitive market the manacplc should rely on the trend in the standard costing variance for the improvement and achieve the goal. The manacplc should work hard on the The sales volume variance which is difference between the actual and expected number of units sold If the manacplc is going on loss so it mean simply that a n unfavorable variance means that the actual number of units sold was lower than the budgeted number sold.There are a number of possible causes of a sales volume variance for manacplc,The company may have released another product that competes with the product, Competitors may have released new products that are more attractive to customers, The company may have altered the product price which in turn drives a change in unit sales volume, A foreign country may have altered its barriers to competition, The selling price variance is the difference between the actual and expected revenue that is due to the changing in the price of a product or service.An unfavorable variance means that the actual price was lower than the budgeted price.The budgeted price for each unit of product or sales is enhanced by the sales and marketing managers, and is based on their estimation of future demand for these products and services

Activity based costingis a costing methodology that identifies activities in an organization and recommend the cost of each step and activity with resources to all products and services. This model having more indirect costs (overhead) into direct costs compared to conventional costing models. Activity-based costing will allow to manacplc to more clearly see the expenses involved with individual activities that are the part of the production of the product.

Replacing Absorption Costing System with Activity Based Costing System Absorption costing would require the company to examine overall fixed and variable overhead, and to figure out how much money was involved in the production of a particular material.

Absorption costing is a costing artistry in which all of the costs affiliate with the production of a good or service . This is in contrast with variable costing, which only includes certain types of costs. Absorption costing is also known as fullcosting or full absorption costing, and it is used in a varietyof ways by companies which wish to create a complete picture of their financial situation, including in the calculation of taxes and sales reports.

Recommendations

A product can only be sold once a price has effectively been set, and this makes a significant progress in price setting decisions. Pricing decisions are affected by a number of models and factors depending on the nature of the product or service that is being presented in the market. The models and concepts to be discussed in this paper are the price-setting and price-taking firms; long-term and short-term pricing decisions; and product mix decisions. The aspect of cost-plus pricing; which is also known as mark-up pricing technique, provides a critical insight into practices that are applied for the purpose of determining the cost of a given product. The value that is added on the actual cost when determining the actual price of a given product  

The standard costing as a process of developing costs, it will be established concerning with manac plc. Foundation particularly in relation with their estimation basing on direct and indirect costs. This will also comprise of measures established in relation to different costs associated with the significant components necessary in the production of the same product or service. Finally the paper will focus on the process of introducing an activity based costing system as a measure of replacing the current absorption costing system. This will be expounded by a number of advantages and disadvantages associated with activity based costing system over the current absorption costing system in relation to its applicability and efficiency.

SUMMARY

Manacplccompany presently uses traditional management accounting concepts such as standard costing and absorption costing methods as a part of its approach to strategic management accounting. Pricing decision is the most difficult way and problematic process because there must be maintain some factors for the manacplc benefits if the price of the products set too high then the customer will not buy the product due to the out of the range and then the customer automatically go to another competitor.there are two parts of pricing decision are incur in short run period there are price of product should be fixed for real time. Increase the production of the commodity, Decrease the production of the commodity, continue producing if average variable cost is less than price per unit, even if average total cost is greater than price, shut down if average variable cost is greater than price at each level of output. The manacplc Managers should start setting prices avail that type of approaches and strategies during the adding stages of the production of the product as a part of strategic pricing to avoid launching products or services that cannot sustain profitable prices in the market.pricing policy will vary and give instruction that how the manacplc sets the prices of its products and services according to the costs, value, demand, requirement and competition. STRATEGIES FOR NEW PRODUCTS pricing strategies frequently depend on the stage a product or service is in all over the procedures which is new products.Penetration Pricing purpose to attract the customers by using different promotions of the products in the market like to getting the customer attention the company can offer the prices of the product very low for the promotion of the product through this the customer will aware of the product Penetration pricing can be a successful marketing strategy when applied correctly. Direct material for this need material price and materials quantity variance, Direct labor For this need labor rate (price) and labor efficiency (quantity) variance, overhead for this need overhead volume variance and controllable overhead variance. Value and Limitations of Standard Costing and Variance Analysis The time and constant report which are almost correct are better than not happening in regular reports that are very short but out of date by the time they are released, If the variance are used as a golfing tool, assistant may be tempted to cover up unfavorable variance or take actions that are not in the best interest of the manacplc company to take variance are favorable , For the development of the company in good manner the labor quantity is the most important part also the efficiency variance which is part of production process is labor placed and other is computation assume that labor is variable cost, Some how some time variance can be favorable or some time may bad, There are so many affections with standard cost reporting systems and arrange the meeting for maintaining the quality of the product for customer satisfaction, To survive in the current situation of competitive market the manacplc should rely on the trend in the standard costing variance for the improvement and achieve the goal. If these discussed thoughts will implement properly into the manacplc business that will be very helpful for the manacplc business growth and this thing will happen when the upper management of the company take steps for good planning and with proper commitments.

Referencing :

Costing and pricing decisions are available at:

KAPLAN, R. and JOHNSON, H.T.: Relevance Lost: The Rise and Fall of Management Accounting, Harvard Business School Press, 1987. [Assessed 12/12/2012]

Penetration price are available at :

http://www.investopedia.com/terms/p/penetration-pricing.asp#ixzz2GMyTG9CZ[Assessed 13/12/2012]

Selling price variance available at :

http://www.accountingtools.com/selling-price-variance [Assessd 13/12/2012]

Labor variance available at:

http://www.readyratios.com/reference/analysis/labor_efficiency_variance.html[Assessd 14/12/2012]

Advantages/Disadvantage of penetration price available at :

http://accountlearning.blogspot.com/2011/07/advantages-and-disadvantages-of_06.html [assessd 15/12/2012]

Cost estimation techniques are available at:

MONDEN, Y. and LEE, J.: How a Japanese Auto Maker Reduces Costs. Thompson Corporation, 1993. [Assessed 16/12/2012]

Activity based costing is available at:

FECHNER, H.: 'Activity Based Costing -- Universally Adaptable or Selectively Applicable?' British Accounting Association Annual Conference Paper, 1996. [Assessed 16/12/2012]

Strategic management accounting is available at:

BROMWICH, M.: Costing For Planning. CIMA Handbook of Management Accounting.Gower, 1988. [Assessed 16/2/2012]

Absorption of costing available at :

http://www.wisegeek.com/what-is-absorption-costing.htm [17/12/2012]

Writing Services

Essay Writing
Service

Find out how the very best essay writing service can help you accomplish more and achieve higher marks today.

Assignment Writing Service

From complicated assignments to tricky tasks, our experts can tackle virtually any question thrown at them.

Dissertation Writing Service

A dissertation (also known as a thesis or research project) is probably the most important piece of work for any student! From full dissertations to individual chapters, we’re on hand to support you.

Coursework Writing Service

Our expert qualified writers can help you get your coursework right first time, every time.

Dissertation Proposal Service

The first step to completing a dissertation is to create a proposal that talks about what you wish to do. Our experts can design suitable methodologies - perfect to help you get started with a dissertation.

Report Writing
Service

Reports for any audience. Perfectly structured, professionally written, and tailored to suit your exact requirements.

Essay Skeleton Answer Service

If you’re just looking for some help to get started on an essay, our outline service provides you with a perfect essay plan.

Marking & Proofreading Service

Not sure if your work is hitting the mark? Struggling to get feedback from your lecturer? Our premium marking service was created just for you - get the feedback you deserve now.

Exam Revision
Service

Exams can be one of the most stressful experiences you’ll ever have! Revision is key, and we’re here to help. With custom created revision notes and exam answers, you’ll never feel underprepared again.