Assignment on Coasting and Pricing Issues

Added on - 28 May 2020

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Running head: COSTING AND PRICING ISSUESCOSTING AND PRICING ISSUESName of the Student:Name of the University:Author’s Note:
1COSTING AND PRICING ISSUESMemorandumMemo to: Board of DirectorsCompany: Jayde TransportFrom: ABC Consultancy FirmSubject: Discussion of costing and pricing policiesDate: 09/01/2018As per the discussions which were held in the meeting the company Jayde Transport needs torevise the current pricing strategy and also introduce a proper costing procedure which canimprove the business’s profits. Jayde Transport is an Australian Freight Transport Companyis engaged in the service sector business of transportation by rail and road which involvesinterstate transport services, wharf cartage and various goods transport which includeswarehousing and distribution of the same. The company operates in Australia and isconsidered to be a reliable service provider in Australia. The analysis and recommendationsof ABC Consultancy firm which are applicable to Jayde transport business are given below inpoint form:1.Most of the organisations involved in service sector follow operating costing methodfor computation of costs. In this method cost are allocated by identifying the costunits which are most suitable for the business, for example in a transport business thecost unit normally is time or passenger/km or goods/km. The first major problem thatany service providing business faces is to correctly identifying the cost unit whichwill be measuring standards for the costs and pricing techniques. Secondly there is aproblem of taking into consideration of all factors from where cost arises. In a
2COSTING AND PRICING ISSUESproduction line of business it is easy to identify each and every cost items but in atransport company a certain rate has to be ascertained on the basis of whichcalculations can be made distance wise. Thirdly there may be more than one cost unitsavailable for a service providing business which may cause confusion which cost unitto consider, for eg in a transport business there is passenger or goods per distancedtravelled and there is a another one which is on a time basis maybe hourly basis.2.In case of Jayde transport they compute their costs on the basis of distance coveredand goods weight also comes into consideration. In case of transportation servicesprovided to passengers then the calculations is done on the basis of the distance whichis travelled by per passengers. The difficulties that the business faces is in identifyingthe proper cost unit which can be selected for the purpose of cost computations anddetermining the price that is to be charged. Another difficulty which arises in thecalculations of cost is that the problem of identifying the different areas where costsare incurred. The service sectors are different from production business which hasinventory costs and such costs can be divided into direct material and direct labourcosts. However this is not applicable in case of service providing businesses.3.As per the analysis of cost and pricing structure of Jayde Transports, ABCconsultancy firm can suggest the application of Activity Based Costing (ABCmethod) can bring about improved results in cost and pricing structure of the business.Activity based costing is a technique which identifies particular activities in anorganisation and then allocate the cost of the activity on the resources on the basis ofconsumption of the resources by that particular activity. The activities of the businessare classified into categories which are Category A, Category B and Category Crespectively. In such a way business can chose which activity is profitable and whichare less profitable. This is significant in the service sectors as the method measures
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