Analysis of Factors Affecting Cricket Bat Costs for ABC Company

This report delves into the various factors influencing the cost of cricket bats sold by ABC Company. It begins by examining the impact of raw materials, particularly willow wood, and how supply and demand dynamics affect production costs. The report further explores how quality control processes, manufacturing location, and production volume contribute to overall expenses. It also highlights the significance of labor costs and the implications of automation on production efficiency and cost reduction. The discussion includes the benefits of automated systems, such as reduced labor needs, improved quality control, and increased production rates. The report also acknowledges the drawbacks of automation, including high capital investment and the risk of technological redundancy. The analysis provides a comprehensive overview of cost drivers and their interplay in the context of cricket bat manufacturing, including the impact of near market and labor costs. It presents a detailed understanding of the factors that management must consider to optimize cost structures and enhance profitability.

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Management Accounting
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Management Accounting
Factors that affect the cost of cricket bats sold by the ABC Company
There are numerous factors that affect the cost of cricket bats sold by the ABC Company. The
first, and arguably the most significant factor, is the raw materials used. Raw materials account
for a significant portion of the end product. The main raw material used in the production of
cricket bats is willow wood. The fact that the production of cricket bats requires specific types of
wood implies that a change in the supply of and demand for the specific type of wood would
affect production cost1. The willow tree which is used in the production of cricket bats notably
has other uses. Increased demand for willow wood from competing uses such as the production
of carvings, furniture, baskets and crates places supply side pressure on the cost of the wood2.
The cost of production of cricket bats is also affected by the quality required. In order to produce
high quality products, a manufacturer has to invest in quality control processes3. These processes
add on to the cost of production as the company will have to use high quality materials that are
more expensive and will have to employ additional staff to perform quality checks.
The third factor that affects the cost of cricket bats sold by ABC Company is the location of its
manufacturing facility. Some manufacturing locations are more suitable to manufacturers than
1 Laird, “The flowering of the Landscape Garden”, 115
2 McGaughey, “Yield Model”, 5
3 Warner, “Imperial Cricket”, 68

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others. Countries or states that have advanced manufacturing infrastructure coupled with fiscal
and tax policies that support manufacturing are generally cheaper to establish and run operations
in. Apart from manufacturing infrastructure and policies, the cost of labor is also location-
related.
The fourth factor that affects the cost of cricket bats sold by ABC Company is volume produced.
Production of higher quantities should lower the cost of producing each unit as overhead costs
are absorbed by a greater number of products. Overheads remain unchanged over a certain range
of units produced. Consequently, the cost of production per unit of product can decline over a
range as the volume of production increases.
Nearness to the market also affects the cost of cricket bats produced by ABC Company. The cost
of getting finished products to the market has to be incorporated into the selling price. Having a
standard price for a product produced by a company is ideal notwithstanding the distance that the
product has to be shipped to get to the different markets it is sold in4. It is typical to offer a
product at the same price within a market such as Europe or the United States of America. In
order to set a single price, the manufacturer has to initially consider how expansive the market is
and set a price that comfortably covers transportation costs within the entire market. If the
proximity of the manufacturing location to the market is close and the market is not expansive,
the additional cost attributable to transportation or distribution will be significantly less.
Labor has a significant impact on the cost of crickets produced by ABC Company. In the
foregoing discussion, labor was identified as a location-related influence on cost. Labor is also a
4 Leland, “Aliens in the Backyard”. 2013.

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independent factor that influences the cost of cricket bats produced by ABC Company.
Production of cricket bats is a labor-intensive operation. The manufacture of cricket bats largely
requires skilled labor. The laborers are used in the crucial process of “knocking-in” bats. This
process involves hitting the bat repeatedly using a mallet in order to compress the wood fibers of
the mallet5. As a result of the labor-intensive nature of the production of cricket bats, the cost of
production tends to be lower when the cost of labor is lower and higher when the cost of labor is
higher.
Implications of new automated systems on the production cost of cricket bats
One of the main effects of automation is that it reduces the need for labor6. This can result in
significant cost reduction as machines do not need to be paid wages. If the cost of maintenance
of the automated systems are is lower than the cost of wages that would be paid in the absence of
the machines, then automation will have a cost advantage.
The second implication of automation is that it is easier to manage quality standards in an
automated system. Automated systems are less prone to errors compared to manual systems that
rely on human labor7. The need to rework finished goods is therefore likely to be significantly
lower in an automated system. Additionally, it is possible to produce standardized products in an
automated system and to operate a quality control regime.
5 Jones, “Brunel in South Wales”, 2009.
6 McGaughey, “Will Robots Automate you Job Away?”, 7.
7 Groover, “Fundamentals of Modern Manufacturing”, 27.

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The third benefit of automating production systems is that it can potentially result in increased
production. This is based on the fact that unlike humans, machines do not tire and as such the
rate of production does not decline over time8. Additionally, incidence of errors is likely to be
lower in an automated system and therefore the cost of reworking and inspection will be reduced
when the automated system is adopted.
Automating the production process can significantly reduce lead times and hence increase
operating and cost efficiency. Automating production systems will provide ABC Company with
a lot of information. Such information includes accurate measurement of the amount of time
taken to produce every single cricket bat and the exact amount of material needed to produce
every single unit. With this information, operations can be streamlined to become more efficient.
It will be possible for instance to order materials and have them shipped just when they are
needed and in the quantities that are needed and consequently save on holding costs. The overall
effect of increased efficiency is reduced cost.
The main drawback of using automated systems in the manufacturing process is that they are
capital intensive and require significant amounts of capital to be committed. The additional cost
of acquiring and setting up automated systems is ultimately borne by consumers in the form of
increased prices in the event that the cost savings resulting from the automation are not large
enough to cover the cost of acquiring the systems.
A further disadvantage of automation for ABC Company is that there is a risk of redundancy of
the technology used before the capital spent has been recouped. Technological advancements can
8 Ouellette, “Automation Ipacts”, 2017.

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render existing technology redundant. Reliance on technology therefore places one in a position
where they have to check for and implement updates. These updates can add additional costs to
the production process and therefore affect the cost of bats produced by ABC Company.
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