Types of Costs and Implementation Challenges

The report explores various types of costs, such as fixed, variable, semi-variable, operating, direct, and indirect costs, which are crucial for businesses to understand and manage effectively. However, it is noted that implementing a costing system can be challenging, especially in industries like electronics where processes become complex. The report emphasizes the importance of expertise in personnel to successfully implement a costing system.

START-UP BUDGETING

Table of Contents
INTRODUCTION...........................................................................................................................1
VALUE CHAIN ANALYSIS..........................................................................................................1
Inbound Logistics: ................................................................................................................1
Operations..............................................................................................................................1
Outbound Logistics...............................................................................................................1
Marketing & Sales.................................................................................................................1
Services .................................................................................................................................1
BUDGET AND ITS REVIEW .......................................................................................................2
Operating Budget....................................................................................................................2
Cash Flow Budget..................................................................................................................2
Financial Budget.....................................................................................................................2
Static Budget..........................................................................................................................2
Master Budget........................................................................................................................2
Setting Standards: ..................................................................................................................2
Analysis of Benchmark..........................................................................................................3
Areas of Weaknesses Evaluation............................................................................................3
Scrutinizing.............................................................................................................................3
BENCHMARKS..............................................................................................................................3
SMART Objectives: ..............................................................................................................3
Key Performance Indicator: ..................................................................................................3
Balance Score Card: ..............................................................................................................4
Control Charts: ......................................................................................................................4
TYPE OF COST AND ITS IMPLEMENTATION CHALLENGES.............................................4
Fixed cost ..............................................................................................................................4
Variable Cost..........................................................................................................................4
Semi-Variable Cost................................................................................................................4
Operating Cost........................................................................................................................4
Direct Cost..............................................................................................................................5
indirect Cost............................................................................................................................5

Challenge................................................................................................................................5
CONCLUSIONS..............................................................................................................................5
REFERENCES................................................................................................................................6

INTRODUCTION
Budget is a planning tool that records data related to tasks like action completion time,
cost, required manpower etc. When a small firm gonna be start to new venture it can be stated as
start-ups and framing budget is essential as they are going to start and is facing financial
problems. Dragon Limited is a mobile manufacturing company located in United States
(Christensen, Raynor and McDonald, 2016).
VALUE CHAIN ANALYSIS
Dragon Limited is a company that manufactures mobile phones which named as DL
phone. This heading includes various steps that are stated below:
Inbound Logistics:
It is an arrival of ram materials and services that are associated with producing mobile
phones. Inbound logistics means acquisition of raw materials and machines for manufacturing
cellphones. It covers basic cost of product that generates value.
Operations
It includes production operations that comprises designing and conceptualization of
phones. Which kind of attributes a phone will have and what will be the design that must be able
in gathering people's attention. It is an actual manufacturing cost or value of a product to Dragon
Limited.
Outbound Logistics
This step is an addition of value that is related with packaging, authority stores, whole
selling and retailing. Sometimes company directly shipped cellphones to their customers.
Marketing & Sales
It adds value to item by producing coast of promotion like advertising, branding etc. and
value related to locations, flagship stores etc. It also comprises secretive and selective unveiling
in it.
Services
Guarantee and warranty services are main attributes of those facilities that are related to
mobile phones. This includes free consultation and extended warranty etc. Free consultation also
adds cost of hiring an expert to reduce customer problems (Verzuh, 2015).
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BUDGET AND ITS REVIEW
There are several budgets which are applied in associations for different purposes.
Operating Budget
It is a forecasting of income and expenses for a specified time period. This budget pays
attention of earnings against expenditures.
Cash Flow Budget
This pays focus on how cash comes and goes out of corporation and how it can be
managed so inflow goes high over outflow.
Financial Budget
It is a strategy that presents management of assets, cash flow, income as well as expenses
and costs. Managers builds this budget to get notify about financial position of company in
marketplace.
Static Budget
It is a fixed budget that is unaffected with changes that occurs in sales volume or revenue.
For e.g. budget of warehouse that does not get affected with anything.
Master Budget
This type of budget is an overall pictures that includes all individual budget for sketching
a complete image of financial activities and health. It comprises several factors like sales,
operations, operating expenses, assets etc. to enable managers that they set company's goals and
targets.
For Dragon Ltd. company master budget is suitable as it includes all other budgets that
are related with lower level functional levels and it is also helpful in forecasting fund that is
related to business activities. Master budget includes cost, purchases, incomes, production etc.
and this also pays attention of cost and profit that is must for forecasting future cash needs.
There are some review steps that checks feasibility of budget.
Setting Standards:
Current status of activities need to be compared by formulated budget and results must be
analysed in efficient manner so that it could generate accurate outcome.
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Analysis of Benchmark
After comparing standards like previously set cost estimate, time duration etc. are to be
analysed by manager in order to get present status foe e.g. whether cost is equal to budget or not
(Zhao & et. al. 2014).
Areas of Weaknesses Evaluation
If activities are overlapping than budget then all areas need to be checked that where
decrement is required.
Scrutinizing
In this section it is to be checked that are the overlapped areas to get reduced or it
requires actually that much cost.
BENCHMARKS
There are relevant benchmarks which analyse status of company and described below:
SMART Objectives:
These are goals that explains various attributes like objectives must ensure sustainability
of cellphones, measures success, goals must not be so high that employees could not achieve,
Dragon Ltd. Must ensure that their products should be rare or hard to imitate by rivals and at last
all objectives should be attained in limited period of time so that they can meet demands of
customers related to latest technology in marketplace.
Benefits: This type of benchmark have some benefits like they assures all objectives must
be attained in time without being copy as well as they showcases path to complete all activities
in a proper procedure (Bialski & et. al. 2015).
Key Performance Indicator:
It is a performance evaluation tool that Dragon Ltd. can use to monitor feasibility of
working pattern of employees. This works as it set some indication at every level like short goals
to be set which has to be achieved by worker and results are to be evaluated that all is doing
good or need improvement.
Benefits: This is beneficial because it does not take so much time to get results as that
consequences can be obtained for shorter period of time. It is also profitable because it associate
low cost and a start up can also applied that in activities.
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Balance Score Card:
This is a management tool that is useful in making connection with all interrelated
activities by communicating proper info and know-how related to operational tasks. This tool
prioritize products and projects to gain competitive advantages. This is a method of providing
scores to activities according to their priority and tasks get to be done as per scores.
Benefits: This tool is very useful as it van be use in small as well as large scale
organizations with full optimization. It is also able in measuring success and growth. It is
applicable in all functional areas (Pandžić and et. al. 2016).
Control Charts:
It is a graph that is prepared by company to analyse several changes that occurs as time
passes. It is a diagrammatically representation of data that includes various aspects like
employee's performance, over financing etc.
Benefits: This is helpful in keeping eye on every activity so that they could be maintained
in best feasible manner. This is easy to make and no extra expertise required in it.
TYPE OF COST AND ITS IMPLEMENTATION CHALLENGES
Fixed cost
This type of cost does not depend upon working. Variation does not occur on the basis of
number of goods and services which are produced by company. For e.g. cost of machine.
Variable Cost
This sort of cost varies as changes occurs in manufacturing goods and services. It relies
on number items and facilities that a corporation produces. For example cost of raw material.
Semi-Variable Cost
It is partially fixed but simultaneously this is variable too. For example an electricity bill
which have some fixed amount and other depends upon use of it.
Operating Cost
This is a kind of expenses which is related with day to da operations that a business
conducts. Like cost of inventory.
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Direct Cost
It is a cost which directly associated with production of a goods or services. For instance
labour, material etc.
indirect Cost
This sort of cost in not directly relates with manufacturing of items. This sort of cost can
not be easily tracked in Dragon Limited.
Challenge
It is very difficult to identify all stage's individual cost and some time process became so
complex if industry is electronics. This costing requires expertise in personnel to get
implemented which everyone dose not have (Trianni, Cagno and Farné, 2016).
CONCLUSIONS
This report can be summed up as budget is a requirement of every business enterprises
whether they are large or small. Creation of a budget is a difficult task because this includes
various activities like costing system, benchmark for performance and growth evaluation, what is
value chain for particular product along with identification of budget type which should be
suitable for start-ups.
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REFERENCES
Books & Journals
Bialski, P. & et. al. (2015). “Saving” the city: Collective low-budget organizing and urban
practice. ephemera: theory & politics in organization. 15(1). 1-19.
Christensen, C. M., Raynor, M. E., & McDonald, R. (2016). What is disruptive Innovation. The
Encyclopedia of Human-Computer Interaction. 2.
Pandžić, H. & et. al. (2016). Toward cost-efficient and reliable unit commitment under
uncertainty. IEEE Transactions on Power Systems. 31(2). 970-982.
Soma, T. & et. al. (2014, January). Optimal budget allocation: Theoretical guarantee and
efficient algorithm. In International Conference on Machine Learning. (pp. 351-359).
Trianni, A., Cagno, E., & Farné, S. (2016). Barriers, drivers and decision-making process for
industrial energy efficiency: A broad study among manufacturing small and medium-
sized enterprises. Applied Energy. 162. 1537-1551.
Verzuh, E. (2015). The fast forward MBA in project management. John Wiley & Sons.
Zhao, C. & et. al. (2014). Power electronic traction transformer—Medium voltage
prototype. IEEE Transactions on Industrial Electronics. 61(7). 3257-3268.
Online
Different Method of Costing. 2016. [Online]. Available through:
<https://toughnickel.com/business/Methods-of-Costing>.
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