Optimizing It Financial Economic Activities -Myassignmenthelp.Com

Question: Discuss About The Optimizing It Financial Economic Activities? Answer: Introducation According to the provided information, it has been identified that Jan Rossi is the accountant of Bonza Hnandtools Limited. The person has come up with a proposal of making the selling price per unit to $140, as it would help in increasing the profit margin. This could be validated with the help of figures seen in accordance with the above table. This is because the adoption of this proposal would help in increasing the profit margin by $75,000, as the current profit level would change from $300,000 to $375,000. However, for experiencing this increase in profit level, an effective advertising campaign is required for Bonza Handtools Limited. In order to conduct this advertising campaign, it would have to spend $125,000. If the advertising campaign fails to meet the desired goals of the organisation like dragging the attention of the customers, it might lead to rise in the overall risk level. The effect would be considerable decline in the existing profit level of the company, while the burden of cost for promotion and advertising would rise largely. In order to combat with this situation, the management of Bonza Handtools Limited would have the selling prices of its products and hence, the customers might have to bear additional costs to avail the products of the organisation. As a result, the organisation might experience reduction in customer loyalty (Alammar and Kohn 2016). Proposal of the production manager: According to the provided information, it has been identified that Tom Tune is the production manager of Bonza Hnandtools Limited. According to the personnel, there should be increase in sales volume by 25% with rise in variable cost per unit by $5. The intention is to improve the overall product quality for generating additional revenues. For this goal to be achieved, it is necessary for the company to use promotional tools that would cost $50,000. As identified from the case study, the contribution margin per unit would decline, if there is increase in variable expense. However, it is to be borne in mind that the person has suggested an advertising campaign, which is although lower in contrast to the proposal of the company accountant, despite the profit level remaining the same. The motive is to enhance the level of satisfaction of the customers by improving the overall quality of the products. Moreover, this proposal would fetch long-term benefits to the organisation in the form of new and repeat purchases. This is because with the improvement in product quality, the existing customers would tend to buy more and new customers might develop that might lead to generation of additional profit in future years. Proposal of the sales manager: According to the provided information, it has been identified that Mary Watson is the accountant of Bonza Hnandtools Limited. According to the personnel, it is necessary to reduce the selling price by $10 per unit for the initial three months of the accounting period. In addition, the company is needed to incur cost of $40,000 in advertising, which would lead to profit generation of $60,000. However, the repercussions might be negative for the organisation in the long-run. The reason is that the fall in the price of its products might result in negative thoughts in the minds of the customers due to the fact that the product quality has degraded. Thus, the revenue generating capacity of the company might be reduced. Recommendations: The above analysis clearly inherits that the directors of the organisation should accept the proposal of its production manager. This is because reliance is kept on improving the product quality and total sales volume. As a result, a profit of $75,000 would be generated. Although the profit is identical to the accountants proposal, there is adequate risk involved in the latter alternative due to greater focus on promotional and advertising campaign. The third alternative would result in increased profit compared to the second proposal. This is because the organisation is likely to encounter an increase in customer turnover. However, after crucial analysis of the provided alternatives, Bonza could adopt the proposal laid down by its production manager, Tom Tune. The below-stated table is formed based on the present plan and two proposed capacities of production of Bonza depending on the given information: The information provided states that the Tassie Company has the ability of manufacturing 200,000 units per annum. However, it is currently manufacturing 150,000 units as laid down in the existing plan. In the words of Butler and Ghosh (2015), if the use of the overall capacity is made, the volume of sales could increase leading to rise in the income level of the organisation. However, as argued by Bennett and James (2017), if the production capacity is increased in case of falling market demand, the company might encounter significant loss. In the provided situation, the existing level of production need not have to be sacrificed to manufacture the additional 40,000 units needed to fulfil the contract of the government. Therefore, the Tassie Company would be able to sell its products at $10.80 each unit. The per unit cost is obtained by adding variable expense, fixed expense and mark-up cost on cost price (Collier 2016). The provided scenario clearly states that the company has the capability of manufacturing 180,000 units per annum. However, the present level of production is 150,000 units per annum. In such scenario, it is required to sacrifice 10,000 production units for earning a profit of $2.50 each unit in order to execute the government contract successfully. Therefore, the average price would be $10.80 each unit for the initial 30,000 units and for the leftover units, the average price would be $13.30 each unit. Thus, the average price of the overall number of units is calculated as $11.43. Segmented overhead cost pools and activity-based costing help in distributing the amount spent on a specified activity depending on the department head. In the words of Collier (2015), the allocation of cost is made for activity depending on the time spent in the production department in order to manufacture goods and services for activity-based costing. Along with this, the usage of segmented overhead cost pools as well as activity-based costing provides a platform for the managers of an organisation in making decisions related to the structure of cost. This is because the motive is to maximise the level of profit. A favourable situation might arise in front of the production manager of a firm while the customer negotiations are carried out (Edmonds et al. 2016). The actual direct cost in relation to a specified department is detected and based on such detection; the anticipated departmental hours are computed in case of activity-based costing. When the above-depicted steps are carried out, the division of actual direct cost is made by the anticipated hours. This would enable in arriving at the per unit rate. Moreover, after evaluation of the unit cost, each cost activity could be apportioned to the product so that activity-based costing could be used (Weygandt, Kimmel and Kieso 2015). Furthermore, at the time the cost is ascertained under activity-based costing and then the cost of overhead per unit could be anticipated that could be distributed to each product. Henceforth, it could be used to ascertain the unit cost of each product, which would help in generating greater sales and profit margin. The direct cost includes the cost pool, while the detection of anticipated hours is carried out as driver of cost (Klychova, Faskhutdinova and Sadrieva 2014). As a result, the fall in cost is inevitable coupled with formation of competitive pricing structure and rise in business income. For instance, the apportionment of supervision charges is carried out by taking into consideration the total number of staffs in a specified department (Kravet 2014). Thus, it could be stated that cost pool is beneficial for tracking the cost driver useful in gaining an understanding of the total cost. The overhead segmentation is highly advantageous at the time of cost determination; however, such declaration is not made in the normal course of a business, particularly during the projection of overhead costs, despite their relationship. Every production department would receive an allocation of income and expense for identifying those business areas, which are providing maximum profits to the organisation (Mouritsen and Kreiner 2016). On the other hand, if the concentration lies on beyond a single product, there could be efficiency in the cost of overhead. As a result, it would be easier for the managers to project the profit margin pertaining to the product line. Along with this, the identification of overhead would be easier for the accountant of the firm that might result in product variations. Such variations could be either positive or negative. As a result, various heads of expenses would be used for segregation of the overhead costs. Thus, the costs could be determined in r elation to single jobs or services. Some examples could be provided to gain an overview of various types of cost falling under the expense head. The variable overhead comprises of wages material handling along with equipment utilities and production supplies. The indirect overhead might be in the form of telephone and office expenditures, salaries of the administrative staffs, legal costs, research and development cost and finally, auditing and accounting fees. The administrative overhead takes into account office supplies, expenses related to front office, wages or commission, external audit and legal costs and lease related to sales office and administration. Finally, the manufacturing overhead is made up of factory rent, salaries for the managers and maintenance personnel, property taxes, factory utilities and janitorial employee wages. Some real-life instances could be used to describe the overhead costs. For instance, in Victoria State Hospital, in order to fix timing of treatment, the use of computer system is made on the part of the physicians and such usage is carried out mainly at the nurse station (Osadchy and Akhmetshin 2015). Along with this, the orders related to treatment and other materials are requisitioned and the other costs and charges are recorded in a systematic way, as per the stay of the patient in the hospital. The costs pertaining to medicines, meals of the patients, X-ray reports and bed fees are taken into account. Therefore, as soon as the patient recovers, the hospital authority provides bills to the person. These bills mainly include fees of the doctors attended, medicines coupled with both direct and indirect overhead costs. Thus, there is effective presentation of the costs in subsidiary ledger that includes medical number and episode number of the patients. Another instance of a manufacturing organisation in Australia, Adelaide Brighton Cement, could be cited that allocates the labour hours in order to assign the precise cost to the employees in order to generate costs that the company would have to bear (Siguenza-Guzman et al. 2014). Along with this, the direct cost and labour hours pertaining to the workers are maintained on the part of the lawyers and the accountants. At the time the allocation of cost is conducted to distinct services and jobs, it becomes simple to track the precise cost amount to be spent. Hence, it assists in formulating the policy related to pricing along with undertaking effective decisions. At the time the overhead cost is allocated to different services and jobs, the total cost of every department is detected and the benefits obtained from all the departments. References: Alammar, A. and Kohn, D., 2016. Proper Accounting is Vital for Sustainable Business Growth. 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Accounting conservatism and managerial risk-taking: Corporate acquisitions.Journal of Accounting and Economics,57(2), pp.218-240. Mouritsen, J. and Kreiner, K., 2016. Accounting, decisions and promises.Accounting, Organizations and Society,49, pp.21-31. Osadchy, E.A. and Akhmetshin, E.M., 2015. Accounting and control of indirect costs of organization as a condition of optimizing its financial and economic activities.International Business Management,9(7), pp.1705-1709. Siguenza-Guzman, L., Van Den Abbeele, A., Vandewalle, J., Verhaaren, H. and Cattrysse, D., 2014. Using Time-Driven Activity-Based Costing to support library management decisions: A case study for lending and returning processes.The Library Quarterly,84(1), pp.76-98. Weygandt, J.J., Kimmel, P.D. and Kieso, D.E., 2015.Financial Managerial Accounting. John Wiley Sons.