Cost Report Analysis for Next Plc: Key Performance Indicators

This report provides an analysis of Next Plc's cost report, evaluating variances in material, labor, and overhead costs against budgeted targets. It identifies key performance indicators (KPIs) such as sales, cost management, technological improvements, employee satisfaction, and profitability to assess the company's performance. The report suggests strategies to reduce costs, including negotiating with suppliers, curtailing unnecessary spending, and improving resource utilization. It also recommends ways to enhance value, such as expanding business operations and introducing innovative products. Furthermore, the report emphasizes the importance of quality management techniques and employee training to improve overall quality. The conclusion highlights the importance of effective cost report evaluation for controlling costs, increasing profitability, and achieving business success.

Management accounting (TASK 2)

Next Plc

Introduction
Next Plc is a UK multinational clothing, footwear and home products retailer
organizations which is operating in international market through 700 stores.
This presentation depicts about the preparation and analysis of its cost report.
Moreover, various key performance indicators will be determined to measure
its performance and take decisions for bringing improvements. In end, report
will discuss on various ways to reduce cost, enhance value and quality.

2.1 Preparation of cost report and its analysis
Cost report refers to the cost of different components than Next Plc will incur in its
production process. It can be analysed through comparing actual cost with the set
budgeted targets, given below:
Particulars Budgeted cost Actual cost Variance (F/A)
Material 15000 15200 -200 (A)
Labour 13500 12400 1100 (F)
Overhead 5200 5400 200 (A)
Total variable
cost
33700 33000 700 (F)
Fixed overheads 7000 8000 1000 (A)
Total costs 40700 41000 300 (A)

Analysis of the cost report
 Negative variance of Material indicates that Next plc's actual incurred
material cost is higher than target cost. It may be due to high supplier
charges because of lack of supply and inappropriate use of material quantity.
 Labour cost is favourable mauy be due to skilled and talented labour force
and less wages rate.
 Excessive fixed as well as variable overheads may be arisen due to
ineffective monitoring or controlling of operational activities by the
supervisors and managers.
 As a result, Next Plc's total cost goes beyond the target cost of 40700.
Hence, managers need to take decisions to control cost and achieve targets.

2.2 Various performance indicators used to identify its
potential improvements
Key performance indicators (KPI) assist Next Plc to identify areas where
management need to pay focus to bring improvements in the
operations, described below:
Sales: Next Plc sale designer, fashionable and innovative cloths, footwear
and home products at reasonable prices to attract more and more
customers. Through getting maximum turnover, it will be able to attain
success in the competitive market.
Cost: Next Plc incur cost on material, labour and other direct as well as
indirect overheads. Thus, all the departmental managers need to
monitor their operations to control their cost because higher cost will
decline profit which is an indication of worst performance.

Contd.
Technological improvement: In the technological age, Next Plc is
required to bring innovations in its manufacturing process through
using advanced and updated technological tools. Moreover, online
service also assist Next Plc to serve global customer base at less cost.
Through this, company will be able to gain competitive advantages
over the rival organizations.
Satisfaction of employee: Workers render services to the customers
hence, they play a vital role in Next Plc's success. HR professionals are
liable to make better employment policies, motivate workers and
resolve conflicts in order to increase their satisfaction level. It makes
an effective contributions towards Next Plc's growth and success.

Contd.
Profitability: Maximum turnover by high customer base, attracting new
customer and retain existing through loyalty while minimizing cost by
maintaining effective control helps to enlarge Next Plc's profitability.

2.3 Suggesting ways to reduce cost, enhance value
and quality
Ways to reduce cost
 Identify areas where cost can be saved through negotiation with
suppliers and other ways.
 Curtailment of unnecessary business spendings in all the departments
like production, marketing, sales etc.
 Effective utilization of business resources to reduce spoilage and
wastage like material.
 Continuous monitoring of the operations with the help of budget
prepared by Next plc.

Contd.
 Technological improvement in production process helps to decline
labour cost.
 Increasing customer base globally helps to increase total production
output of Next Plc. As a result, cost per unit can be decrease.

Ways to enhance value
 Multiple profit centre by operating in diversified market segments
and diversified products or services.
 Expanding business operations at international level.
 Drive maximum return on the investment to increase shareholder's
worth.
 Use of advanced and updated technologies to gain competitive
advantages and strengthen the business position.
 Introduction of new and innovative products and services as per
customer desires, wants and needs.

Ways to enhance quality
 Use of quality management techniques such as Total Quality
Management (TQM). It is a best techniques in which every staff
member of Next plc is committed to maintain standard quality in its
operations. So that, better services can be rendered to the customers.
 Investing in training help to improve workers skills hence, required
production can be assured in less time.
 High employee commitment and quality circles also assist Next Plc
to address problems and remove it by taking corrective actions
timely.