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Cost Management and Sustainability Analysis

   

Added on  2020-07-22

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Strategic Applications of ManagementAccounting
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TABLE OF CONTENTSINTRODUCTION...........................................................................................................................1CASE STUDY 1..............................................................................................................................11. Assessing the pricing strategy that HWL need to adopt from 2019 to 2021...........................12. Calculating target cost per unit of RayHot on the basis of required profit margin on sales@20%..........................................................................................................................................23. Computing total cost per unit..................................................................................................24. Comparing target cost per unit with total cost PU...................................................................3a....................................................................................................................................................3b...................................................................................................................................................4c....................................................................................................................................................45. Preparing life cycle budget for RayHot from 2018 to 2022....................................................4A. On the basis of data given in table 1, 2 and 3.........................................................................4b. As per data given in table 1 and target requirements of 4(a)...................................................5c. Performing NPV analysis considering the table 4...................................................................5CASE STUDY 2..............................................................................................................................51. Evaluating trial cost saving rewards system in the context of ATL........................................52. Identifying the extent to which team based cost saving measures help in evaluatingperformance and awarding bonus................................................................................................63. Assessing cost saving performance measures and other forms of incentive scheme..............74...................................................................................................................................................7a....................................................................................................................................................7B...................................................................................................................................................75...................................................................................................................................................8a....................................................................................................................................................8
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b...................................................................................................................................................9c....................................................................................................................................................9CASE STUDY 3..............................................................................................................................91. Determining annual electricity cost for QPT Ltd that is associated with the heating of waterat 70 degree temperature..............................................................................................................92. Calculating saving amount in dollar if lower temperature is used such as 60 degree...........103. Computing electricity cost at both 70 and 60 degree when water flow decreased from 12 to6 minutes....................................................................................................................................124. Computation of energy cost saving.......................................................................................145. Calculating annual lighting cost for the QPT........................................................................146. Assessing saving amount if QPT will replace 80Watt Halogen bulbs with 20 Watt LED’s.157. Providing recommendations to the managing director of QPT Ltd......................................16CONCLUSION..............................................................................................................................17REFERENCES..............................................................................................................................18
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INTRODUCTION In the recent times, business units lay high level of emphasis on undertaking the tools andtechniques of management accounting for the purpose of decision making. Moreover, byapplying the tools of management accounting manager of the firm can make proper forecast ofsales, cost and price etc. This in turn provides high level of assistance to the management team offirm in setting suitable budgeting framework for the future or specific time frame. Hence, byusing such budgeting framework manager can compare actual performance and thereby wouldbecome able to find out the deviations. In this way, techniques of management accounting givesindication for the areas that need improvement and meanwhile aid in the success of firm.The present report is based on different case situations which will develop understandingabout the aspect of target costing. Besides this, it will shed light on the manner through whichunit cost of per unit can be assessed. It also depicts how techniques of investment appraisal helpin making selection of suitable proposal over others. Further, it will also describe various typesof performance measures that can be used within the organization. CASE STUDY 11. Assessing the pricing strategy that HWL need to adopt from 2019 to 2021 There are different types of pricing strategies that can be employed by HWL such aspenetration, competitive and cost plus pricing etc. Thus, out of such pricing strategies firmshould lay greater emphasis on undertaking competitive pricing strategy. The rationale behindthis, usually customers make comparison of price with quality aspect. In this regard, by settingcompetitive prices HWL would become able to attract more customers. On the other side,business unit can also employ cost plus pricing strategy which in enables it to attain desiredmargin. On the basis of cited case situation, HWL wishes to earn 20% profit margin by selling
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per unit of RayHot. Thus, by determining unit cost and adding 20% margin into it HWL candetermine suitable price which in turn helps in getting the desired margin. Hence, firm should gowith competitive or cost plus pricing strategy (Fayard & et.al., 2014, p.1). 2. Calculating target cost per unit of RayHot on the basis of required profit margin on sales@20%Target costing may be served as approach which is undertaken by the firm for setting costobjectives. Method of target costing is highly effectual which in turn provides high level ofassistance in setting suitable cost on the basis of price prevalent in the market (Target Costing,2017). In accordance with such aspect, by keeping cost below the target level company cangenerate desired margin. Thus, by using the following formula HWL can determine target cost: Target cost: Selling price / 1 + profit % YearSelling price (in $)Target cost per unit @ 20% profit margin (in$)2019100083320208006672021750625Interpretation: The above depicted table shows that target cost per unit will be $833respectively when selling price is $1000 and desired margin is 20%. Further, in 2020 & 2021target cost associated with HWL products account for $667 & $625 respectively. 3. Computing total cost per unit Particulars / Years201920202021Direct material$250$250$250Direct labor$125$125$125Manufacturing overhead$125$125$125Total variable cost$6,000,000$8,500,000$3,000,000
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Fixed costResearch and Development1500.001500.001500.00Product and process design1850.001850.001850.00Marketing675.00675.00675.00Supplier training108.75108.75108.75Customer support325.00325.00325.00Total fixed cost445944594459Total cost$6,004,459$8,504,459$3,004,459Forecasted sales units12000170006000Cost per unit (Total cost /number of units producedor sold)$500$500$501 Interpretation: The above depicted table shows that in the year of 2019 and 2020 totalcost per unit accounts for $500 respectively each. From assessment, it has been identified that in2019, 12000 units will be sold by HWL. In contrast to this, forecasted sales unit pertaining toyear 2020 implies for 17000. Further, in 2021 forecasted sales unit and total associated with eachunit sold accounts for $501 significantly. 4. Comparing target cost per unit with total cost PU a.Particulars / Years201920202021Target cost per unit $833$667$625Cost per unit $500$500$501Difference $333$167$124
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