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What are the pros and cons to benchmarking
Benchmarking
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• Hiram Phillips could have used benchmarking to assist in his cost reduction efforts by following the five stages of benchmarking. Initially, an internal study and preliminary competitive analysis should have been conducted to determine how it currently performs on its dimensions. Some of these activities are labor cost, delivery of shipments, customer service time spent on the phone, and cost of commissions on sales to employees. Using the company internal data and preliminary external competitive analysis, using industry comparisons of quality from reliable consumer reports, would determine the scope and significance of the study for each area.
• In the second stage, a benchmarking team should have been developed of committed individuals to the benchmarking project by Hiram. The benchmarking team should include individuals from all functional area in Rainbarrel. However, the commitment of the benchmarking team have to be a long term thing because adopting new methods and procedures can take several years for an organization culture to fully adopt change. Also, Hiram should have obtained the support of senior management to give the benchmarking team the authority to spearhead the changes, developing a clear set of objectives to guide the benchmarking effort, and empowering employees to make change.
• In the third stage, Hiram should have identifying benchmarking partners that are willing participants that have similar activities and knows the process. Finding a company that is the same or similar in size of the company with specific activity or method being benchmarked would have made a great benchmarking partner for Rainbarrel. Having a wide array of benchmarking participants would have helped the company increase its be...
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...uppliers to manufacturing to distribution and service costs. If distribution, service, training or other downstream activities significantly impact a product’s cost, then the employees who are the experts from these areas should be actively involved in designing the product to minimize these costs.
If Rainbarrel uses the target costing system for profit planning and cost management, the company will be able to focus on minimizing the costs of the company’s products in RD & E stage of a product’s total life cycle rather than the more costly way of trying to reduce them during the manufacturing stage. This system will help cut cost and provide the ability to be more efficient and effective as well.
Reference:
Atkinson, A.A., Kaplan, R.S., Matsumura, E.M., Young, S.M. (2007). Management Accounting (5th ed.). Upper Saddle River, New Jersey: Pearson Education, Inc.
Reimers, Jane L. (2003). Financial Accounting A Business Process Application. Upper Saddle River, New Jersey, Prentice Hall.
Management accounting in organisation is very important for decision-making and to make the business more efficient and therefore increasing its profits. Is the process of preparing accounts that can help managers to make day-to-day and short-term decisions, by providing them with accurate and timely key financial and statistical information...
John Deere Component Works (JDCW), subdivision of John Deere and Co. was in charged specifically of the manufacturing of tractor component parts. The demand for JDCW’s products had problems due to the collapse of farmland value and commodity prices. Numerous and constant failures in JDCW’s competition for bids, alerted top management to start questioning their current costing methods. As an outcome, the analysis has to be guided to research on the current costing methods with the intention of establishing legitimacy and to help the company in adopting a more appropriate costing system.
"Benchmarking's real role has to be seen in the context of the organization that is continuously implementing improvement" (Bendell, Boulter, & Goodstadt 1998). Organizations implementing the benchmarking process are continuously looking to improve, and planning improvement. Improvements can be made by looking at the firm both internally and externally. Internal improvements are implemented by analyzing processes and setting targets for performance. However, output performance measures are not able to help management understand why a practice is effective. This understanding is a result of personal interpretation of the process. Organizations must look to other firms for ideas to borrow from global leaders, regardless of the scope of the necessary improvement. Equally important as data collection is the actual implementation of the newly acquired business practice.
This project belongs in the engineering-efficiency category; therefore, it has to fit at least 3 of 4 performance hurdles, which are 1. Impact on EPS; 2.Payback; 3.Discounted cash flow and 4. Internal rate of return.
...n a mix of fixed and variable costs as well as other influences such as learning curves, the manufacturer will experience reduced incremental costs for each additional unit purchased above each tier’s minimum purchase quantity. The main goal of the below methodology is to capture the inefficiencies of minimum purchase quantities and purchase based on true costs.
Hansen, D., Mowen, M., & Guan, L., Cost Management: Accounting & Control 6th ed., Mason, Ohio: South-Western
For example: with the increase of the number of products produced, the cost of operating a machine also increase. Second we have batch level costs which is associated with batches; producing a multiple units of the same product that are processed together is called a batch. The third type is product level costs which arise from any activity in order to support the production of products. The fourth and the last type is facility level costs, this costs cannot be determined with a particular unit, product or batch; this costs are fixed with respect to batches, products and number of units produced. A single measure of volume is used for allocating costs to each service or product in traditional method for example: direct material cost, machine hours, direct labor cost and direct labor hours. A cost driver is an activity that generate costs, it can be generated by two types of costs the first is a particular machine 's running costs where the costs is driven by production volume as machine hours; the second is quality inspection costs where the cost is driven by the number of times the relevant activity occurs as the number of
Job costing involves usage of situations where every job is done cost differently, consumers specifications play a bigger picture in this case. Direct and indirect costs are encountered. It is believed that job costing has lots of costs accrued from the production to the consumers (REEVE, J. M., WARREN, C. S., & DUCHAC, J. E. 2012). This involves labor, running of machines, and all the individuals who are involved in the production of a product from raw to the final product, indirect costs are applied in this order. Job costing order is best showcased in a manufacturing company, let’s take coca cola company, company specialized in beverages manufacturing and distribution, usually customers have no say in the final products of this company, but as the trends for consumption of a certain flavor, according to their statistics they will conform with the demands. The special requirements, like name branding on the bottles of the beverages, customization of the containers have had a significant impact in the consumption of coca cola products (Weygandt, J. J., Kieso, D. E., & Kimmel, P. D. 2010).
Heisinger, K., & Hoyle, J. B.(2012). Accounting for Managers. Creative Commons by-nc-sa 3.0. Retrieved from: https://open.umn.edu/opentextbooks/BookDetail.aspx?bookId=137
A cross functional team of marketing experts, engineers and cost accountants determine the cost of a product early in the design and development phase based on what customers desire in a product and what they are willing to pay for the new product. Implementing this market oriented approach enables firms to set the desired profit margin early if not prior to the product development process. Two methods are used to set target cost: subtractive, addition. Subtractive is the method of determining the sales price and subtracting the desired margin to arrive at the target cost. Addition is the method used when the sum of all cost plus the desired margin provide the firm the target cost. Target costing is often subdivided into
In this process, it was important for me to establish the sense of urgency as well as the vision of the project. I accomplished this by meeting and working with the stakeholders, securing their consensus and working with the technical team to develop technical...
The second way is to achieve low direct and indirect operating costs is gained by offering high volumes of standard products and offering basic no-frills products. Production costs are kept low by using less parts and using standard components. Limiting the number of models produced to ensure larger producti...
Activity-based costing (ABC) is a costing method that is designed to provide managers with cost information for strategic and other decisions that potentially affect capacity and therefore “fixed” as well as variable costs. Activity-based costing is mostly used for internal decision making and managing activities while traditional costing method is used to provide data for external financial reports. Most organization uses activity-based costing as an addition system for using traditional absorption costing as sometimes the traditional cost system misleads the product’s profitability. In a company, there are many products on sale, if one product is sold at a high price with low product margin and a product with high product margin at a low price, it may result in a loss. In addition, due to the reason that cost drivers and enterprises business may change, activity-based costing analysis also needs to be revised periodically. This amendment should be prompted to change pricing, product, customer focus and market share strategy to improve corporate profitability.