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Morrison is in supermarket business for over 100 years now. It is the fourth largest chain of supermarkets and currently has 403 superstores in the UK. It mainly deals in food and groceries and home wares, with fewer electronics, clothing and furnishing.
Morrisons supermarkets are currently spreaded in to 6 regions of the UK.
It is part of FTSE 100 Index of companies. It currently employs more than 114,000 members of staff in stores, factories, distribution centres and head office administration.
According to survey, every week nine million customers visit Morrison supermarkets. To deliver great services to its customer, there are 124,000 staff is available to help them.
Morrisons is leading in encouraging children to learn about growing food and where it comes from. Since 2008 company has invested in school gardening equipment of over £3m. Over 26,500 schools registered are already registered and 5m children are involved. Catalogue extended to include over 150 gardening items
Below table show the financial Highlights of company for past three years.
http://www.morrisons.co.uk/Corporate/Investors/Financial-Reports/; Pg: 4
Interpretation of Financial Highlights:
Group turn over:
Group Turnover grew by 1.5 bn to 14.5 bn a 12% increase. Compared to 13.0bn, due to industry leading like- for- like store sales growth and strong fuel sales.
Like-for- like sales:
Like for like sales, the measure of growth in existing stores increased by 7.9 %.
Under lying before tax increased by 13%, driven by the strong like-for-like sales performance and ongoing delivery of the optimisation plan.
Net Debt has only slightly increased in the year despite increased capital investment of 678.
Capital expenditure has increased reflecting additional focus on growing the estate and supporting the optimisation plan.
Total Dividend for the year has increased 21%, making dividend cover 2.9 times.
Basic underlying earning per share increased from 14.38p to 16.67p.
Factors Affect Profitability:
Three factors affect business profitability; these are price, volumes and cost. Unfortunately, each affects the other; piece affects volume, volume affects cost. And cost affects price. Getting all three right is a delicate balancing act.
Price is hard to determine because finding the ideal price is so difficult. Customers don't just buy on price. They are influenced by all sort of intangible like advertising, promotion, image fashion hype perceived quality etc. This is why it is almost impossible to determine the ideal price. How high can you go? The right price has to satisfy both buyer and seller. On the one hand, the price can't be so low that the seller makes no profit. On the other hand, the price can't be so high that it frightens customers away. Between these two extreme, there is a wide range of possible prices.
In theory, the higher the price, the less the customer buys. This is because, at higher price, increasing number of customers decide that the product fails to satisfy their sense of value.
In practice, pricing a product can be complicated. Many factors affect the customer's decision to buy. Some customers buy on impulse without even giving price a thought. Ideally, we would like to experiment with different prices so that we can check customers reactions at different price levels. However, it is hard to experiment with price because you upset customers who hear of other paying a lower price.
Product Pricing & Costing:
Many businesses set their price by adding a profit margin to cost. Despite the widespread use of this method. Cost plus profit pricing is unlikely to give the best price for the seller (or for the buyer), expect by chance. For a start, most customers don't know how much the product cost to make, nor do they know how much profit margin has been added, so they are in no position to judge whether the price is fair or resonable.
Customers make their decisions on more varied grounds such as:
Is this product cheaper or dearer than competetitive products?
Is the product better or worse than competitors products?
Is the product better value than competitors products?
Does it offer product meet their needs?
Does it offer value for money?
How good is it - the perceived quality?
Will it do the job?
How much they can afford (either now when the bill has to be paid, or on monthly credit)
Advertising, branding , image
How much do they trust the supplier availability ?
How much they need it ?
How much they want it ?
An acceptable price will depend more on the customer's perception of worth than product cost.
Information require by the managers that would help them in business:
Knowledge of Local Culture:
Having knowledge of local culture help managers in satisfying the local customer need. This could be done by employing local people who understand the local culture well.
Needs of Customers:
Having knowledge of customers need help manager in full filling their needs because customers know best so ask them. It also helps company in meeting their long term goals.
Feedback of Customers:
Asking customers for their feed back on shopping preferences would help manager in spending in accurate product lines.
Segment your customer:
Segment customers according to their age, value of shopping and life style and then adapt its branding and packaging to reflect these distinctions.
Get the Layout Right:
Design stores around local shopping trends and even time of the day.
Right people for right Job:
Appointing right people for right job helps manager in meeting their targets, save money and finish job in time.
Promote from with In:
Motivate, spot and retain talented people from with in the company.
Remould its approach for each new market.
Variance means difference while analysis means breakdown.
In Cost or Management Accounting, variance would relate to difference between Standard or Actual Costs. Analysis would break this difference into various parts like quantity, price and capacity. Any wide variation would be thoroughly investigated and persons responsible (purchase manager, human resource manager, factory manager or marketing manager) would be asked to explain. If it proved avoidable or controllable, someone would be penalized or reprimanded else measure would be taken to avoid in future as far as possible.
In short, variance analysis helps the management in decision - making. In addition
It is used in cost control
Gives early warning for corrective action
Is useful in accountability
What is a standard cost?
It is a planned cost or target cost. It is a realistic estimate based on historical data or experiments like time and motion studies. Standard costs give an indication of probable cost of performing an operation or producing a good or service in normal conditions. Later, such estimates serve as a bench marks against which actual data is compared.
Whereas Actual cost is the Actual amount paid or incurred, as opposed to estimated cost or standard cot.
A comparison of Actual Costs with standard costs gives an idea of efficiency. Other things remaining the same, if actual cost increases estimated cost, there may be with in- efficiency or dishonesty.
It is used for accountability. Comparison may reveal weak areas and corrective action can be taken against the manager before it is too late.
Since in- efficiencies or dis- honesties are revealed by comparison on regular basis. Top managers can relax and intervene only when wide variations are highlighted. This is known as management by exception.
It is help in cost control. Whenever the comparison reveals wide and persistent differences, the matter is investigated and efforts are made to avid its repetition.
Few guidelines may be kept in mind while analysing variations:
Variations are natural due to time lag between Estimating Standard costs and collection of actual costs.
Small variation should be ignored.
Systematic or non-random variations, howsoever small, must be investigated since it is due some system error.
Investigation would be more useful if the variation can be avoided or controlled.
Cost of investigated and cost of not investigation may also be ascertained for a better decision. In case of investigation the following questions be asked
Where did it occur?
At what time did it occur?
What did it occur?
Who is responsible?
What would its implications?
The absorption costing method also called as full costing method is an inventory valuation / costing model that includes all manufacturing costs.
Direct materials (those material that become an integral part of a finished product and can be conveniently traced into it)
Direct labor (those factory labor costs that can be easily traced to individual units of product. Also called touch labor)
Both variable and fixed manufacturing overhead in the cost of a unit of product. As a result, under absorption costing, fixed overhead is a product cost until sold. Absorption costing is also referred to as the full cost method.
Absorption costing recognizes the importance of fixed costs in production;
This method is accepted by Inland Revenue as stock is not undervalued
It is always used to prepare financial accounts
When production remains constant but sales fluctuates
Unlike marginal costing where fixed costs are agreed to change in to variable cost, it is cost in to the stock value hence distorting stock valuation
An absorption costing emphasized on total cost namely both variable and fixed, it is not so useful for management to use to make decision, planning and control
As the manager's emphasis is on total cost, the total volume profit relationship is ignored. The manager needs to use his intuition to make the decision.
Limitation of Absorption costing
A portion of fixed cost is carried over to the subsequent accounting period as part of closing stock. This is an unsound practice because costs pertaining to a period should not be allowed to be vitiated by the inclusion of costs pertaining to the previous period and vice versa.
Further, absorption costing is dependant on the levels of outputs which may vary from period to period., and consequently cost per unti changes fue to the existence of foxed overhead. Unless fixed overhead rate is based on normal capacity, such changed costs are not helpful for the purposes of comparison and control.
Absorption cost is used for cost control purpose.