Analysis of Business Recommendations
The three business recommendations to management are the adoption of the Implementation of control on external spending, eliminating the concerns of capacity utilization and a zero-based costing system. The above three measures would mainly ensure that the organisation is able to improve its current operations while having lower concerns in its income statement. The adoption of relevant control on external spending would eventually help the organization to reduce the unjustified expenses that are conducted by external operating companies where relevant work has been outsourced by the organization. The control on external expansion is essential, as without the adequate monitoring processes of the organization the external companies where the work is being outsourced do not work appropriately to minimize expenses incurred in the operations. Hence, the implementation of the control on external spending would eventually help in minimizing the administrative expenses of the organization, which in turn would boost net income. Henceforth, the decision of controlling the external spending is essential for curbing the excessive expenditure and misuse of resources by the external operators of the organization.
Furthermore, the recommendations are adequately eliminating the concerns for capacity utilisation by increasing the capacity of the organisation at appropriate levels. Thus, seeing the overall changes in demand of the organisational needs, relevant improvement in its capacity utilisation conditions needs to be conducted, as it would help in reducing the level of resource wastage and maximize the capital deployed to conduct relevant operations. The analysis of the organization needs to implement the third recommendation of a zero-based costing system, as it would help in locating the appropriate levels of the sources to the accurate department. This would allow the organization to increase internal control and reduce any kind of misuse or wastage of its overall resources while conducting business operations. The combination of zero-based accounting systems would eventually help the organization to control the external funding while adequately evaluating the accurate levels of expenditure required on outsourced administrative activities. Therefore the use of a zero-based costing system would eventually help the organization to control its expenditure and maximize the level of profits from the operations.
The activity-based costing (ABC) system is one of the key measures that organisations use to improve their current operational capabilities. The method mainly identified the total cost of activities that are required for completing a particular product, which in turn helps in detecting the cost factors influencing the production process. Thus, the ABC system, assigns certain costs for each activity according to the production needs, while optimising the total resources used by the organisation. The overall cost of goods calculations is mainly analysed with the help of the ABC method, which can help in improving the levels of expenses while creating the list of factors that lead to the creation of the product. Thus, the methods help in understanding the overheads of the organisation, which can be minimised by adequately adopting the ABC system (Mahal & Hossain, 2015). Hence, the detection of overhead expenses the organisation could detect the costs and segregate them on the basis of value to determine, which can be eliminated in the process. However, the major limitation of the using ABC system is that considers both the direct and indirect expenses, while certain the product, where the overheads are not excluded from the overall calculations, This would create issues in the overall recognition of indirect expenses including the production process. Consequently, it could be understood that the ABC method is suitable for small businesses while using the method on big businesses with higher overhead costs would lead to disparity in the calculations and hinder the actual progress of the organisation.
Importance of Adopting Controls on External Spending
The cost drivers of the organisation are mainly structural determinants of an activity, where it directly reflects the overall linkages that affect the production process of the company. Therefore, cost drivers are considered to be the behaviour of the expense within the activities, while detecting the relation between them. Thus, the overall analysis indicates that the cost drivers are established for different cost pools, which could help in carrying out the ABC system effectively. The analysis of the cost drivers indicates that short term indirect variable costs can directly influence the output volume. However, the long term indirect variable cost does not affect the output volume. Hence, using the establishment of direct cost pools would be best suited for the organisation.
There is one advantage of the job order costing method, which can have improvements in the overall operations of the business. The significance of the method is that enables the managers to calculate the profits earned based on the individual jobs. These overall measures ensure that the managers are able to ascertain the overall specific job while making informed decisions regarding the selection of the job in future. This allows the business for increasing the level of customization in the production process, which in turn improves customer satisfaction and create lower levels of expense based on the demand from customers (Drury, 2018). The job order costing method is mainly useful for companies that have highly custom businesses, such as construction contractors and consultants.
The process costing method allows the organisation to simplify the overall record keeping method while relying on statistical calculations for determining the cost. The major significance of the processing costing method is that it helps managers to understand the information regarding the production process while using statistical calculations. Therefore, individual departments are mainly evaluated on the process costing method, where the overall process is best suited for manufacturing companies (Hansen, Mowen & Heitger, 2021).
Therefore, the analysis indicates process costing is the best-suited method for the organisation in comparison to the Job order costing method. The process costing is mainly a manufacturing process, where it would allow the organisation to minimise its overall expenses, while job costing is not suited, where customised products are made. The company is a manufacturing process, where all the products are same and the customization process are not needed in the production process. Hence, the use of process costing is best suited for the organisation.
References:
Drury, C. (2018). Cost and management accounting. Cengage Learning.
Hansen, D. R., Mowen, M. M., & Heitger, D. L. (2021). Cost management. Cengage Learning.
Javid, M., Hadian, M., Ghaderi, H., Ghaffari, S., & Salehi, M. (2016). Application of the activity-based costing method for unit-cost calculation in a hospital. Global journal of health science, 8(1), 165.
Mahal, I., & Hossain, A. (2015). Activity-based costing (ABC)–an effective tool for better management. Research Journal of Finance and Accounting, 6(4), 66-74.
Shim, J. K., Siegel, J. G., Dauber, N. A., & Qureshi, A. A. (2015). Accounting handbook. Barrons Educational Series, Incorporated.
Order an Essay Now & Get These Features For Free:
Turnitin Report
Formatting
Title Page
Citation
Outline
