This report summarises all the significant factors that are involved in the cost accounting process of a manufacturing company. It will describe the significance of the value chain process of the manufacturing company. The proper management of a business plan will be given along with the strategies to maintain it. The various perspectives that defines the balanced scorecard for performance will be mentioned. An overall overview of managerial accounting system on the financial health of the company will be given.
Table of Contents
In today's world of competitiveness, the determination, as well as accumulation of the cost of production, has become an exigent factor for each and every manufacturing company. Managerial accounting has been at its topmost priorities for every company in recent years. Effective decision making in the form strategies and cost-effective plans to ensure a balanced approach to any situation has been achieved through cost accounting methods. It involves information regarding control of cost products and ascertaining them. The measurement of the operational efficiency of the organisation is given by cost accounting. In this study, it will be seen that how the cost accounting process involves various stages through which the manufacturing companies can have effective decision-making systems more effectively.
The company which is selected here is a renowned manufacturing company of Australia named International Seal Co Australia (ISCA) it is an ISO 9001:2008 certified engineering and manufacturing company with a vast amount of experience in design and art of state facilities. Prototyping and fabrication of bespoke components and manufacturing of large products is its main component of manufacturing. ISCA was established in 1979 with a vision of producing a comprehensive range of services and products which will help others to develop, repair, plan, and manufacture. The company aims to provide superior engineering solutions to all the limitations faced by the industry. Sustaining, enhancing and achieving customer satisfaction is its mission (isca.com.au, 2017). The management ideas involve compliance with the ISO 9001:2008, integration of quality management in the work process and commitment to continuous improvement by regular review of systems and processes. Products that it focuses on involve seals, rod wipers, O-rings, gaskets, marine finders, and hoses. The staff contains various engineers and project managers.
The value chain is the chain of the process that depicts a chain of value-added activities that are followed by ISCA in order to gain profit at each stage. The activities involved in value chain determine the costs and thus decides the profits of ISCA. The usage of a value chain tool is used to analyze the source which in turn improves the organisation. The usage of Porter's value chain model has helped in identifying and determining the value chain of ISCA. For this company, the basic equipment and engineering products are generated from the basic raw materials such as iron ore, steel, and fabrics from different vendors. The main production units are raw material handling plant, refining plant, blast furnace, steel melt shops, merchant mills and fabrication mills. In addition to the main units, there are various auxiliary units such as oxygen welding plants, engineering shops, and power plants. This can well describe the value chain of ISCA.
Figure 1: The value chain model of ISCA
(Source: Created by Author)
● Inbound logistics
This involves the collection of basic raw materials in the form of steel, iron, and fibers that are used for the manufacture of equipment. It also involves reclaiming of the materials and distributing it to different departments of ISCA.
● Operations management
This involves the processing and handling of the raw materials. It also involves manufacturing of the components to meet the requirements of the company. Carrying out the various repairmen of instruments pertaining to different units of the manufacturing sector is highlighted. Metal injection molding in the house requires various clamping and ton ratings. The processing of these ratings is also maintained in the operation management.
● Outbound logistics
This involves effective planning and dispatch of the various products that are manufactured by ISCA. The distribution management, warehousing and transportation come under this section of ISCA.
● Marketing and sales
Price management, Product management, promotion management and distribution management are the key factors that come under the market and sales department of ISCA. The domestic sales and export sales of all the manufactured equipment are also involved in this category.
● Service after sales
This involves quality statements, commercial terms, delivery aspects, pre and post sales contact and complaint solvency procedures of ISCA.
The secondary activities involve material management, vendor development, and cost of purchase.
The various strategies adopted by ISCA for an effective business plan are
● Establishing and maintaining the compliance of quality management with that of ISO 9001.
● Encouraging all the people in the organisation to integrate quality management into the workforce (isca.com.au, 2017).
● Establishing high-quality standards by working closely with the contractors, customers, and suppliers.
● Production of quality products in a timely and consistent manner.
● Committing towards continuous improvement through regular review processes and systems.
● Fostering a work environment by involving mutual respect amongst each and every employee.
● Achieving compliance with the regulatory and legal requirements.
ISCA focuses on customer satisfaction pertaining to the growth of the business. It stresses the particular needs of the people instead of what is needed by the government and the bureaucrats. It thus stands in a good position (within top 7) as compared to the other manufacturing companies in Australia. The company throws light upon National Energy Guarantee. This initiative will provide both the investors and the customers to invest. ISCA stresses on the new energy plan put forward by the Australian government. Unlike the other competitive rivals namely Australian Pharmaceutical Manufacturer and Hyundai Motor Company, the customer service provided by ISCA has surpassed by huge margins (isca.com.au, 2017). ISCA follows a definite service ethic, very much innovative and always strives for providing solutions to customers. Its potential rivals have failed dramatically in the fields of customer service as well as failed to provide solutions. The revenue generation of ISCA has been $850,000 AUD in the 2017 financial year compared to that of nearly $635,000 AUD for manufacturing companies like Honeywell and ABB (manmonthly.com.au, 2017). This has proved that the company has achieved a great stake in terms of productivity and sales which has ensured them a good position in the domestic market.
Sales budget comprises of an estimation of the number of products ISCA expects to sell in a stipulated time to that of the expected sales price of the unit. The sales budget drives the other forms of the budget (Gelli et al. 2015, p.10). The information needed by ISCA includes the production budget, the overhead budget, labor and expected sales. The trend of the customers, advertising strategies, the production capacity of the company and the changes in the economy are also the key factors were information is needed to be gathered. The manager of the ISCA reveals that off sales credit up to 80%. 70% of the credits are collected in the first quarter and the rest in the next quarter. ISCA mentions that it produces an inventory 10% of the quarter’s next sales so that it can accomplish a sudden demand of the customers in the next financial year. The involvement of the skilled labor is very much stressed upon by the company. Labor head charges cost around $100 per hour. The company involves a fixed overhead charge in the form of factory insurance and supervisory salary. This information is needed by a company for the budgeting process.
The methods followed by ISCA pertaining to the monitoring of selling plans are
● The company checks whether the money that has been put in the marketing and sales has created any profit. It measures the amount spent on each campaign to that of the amount gained from each campaign.
● The company ensures a thorough review of the number of sales. This is the fastest method by which it can determine whether it is incurring a profit or loss (Timmer et al. 2014, p.100).
● The company stresses on customer response on the various products used by them. The company ensures that the feedbacks coming from the customers are recorded and solved to ensure effective selling practices. Monitoring is done through review software through which it is noted the maximum amount of products the customers is buying.
● It focuses on the expansion of the market (Prajogo, 2016, p.200). This method indirectly monitors the selling practices since an expansion of market will ensure product satisfaction and proder spread.
● ISCA also stresses upon the response of the market partners. The effective response of the market partners becomes pillars of improvement towards selling practices.
● The company also takes into account the response of the competitors of the market. When it comes to the successful implementation of selling plans, an assurance from the market rivals becomes very relevant.
Many manufacturing companies in Australia have measured their organisational performance by focusing on their internal or process performance, by looking at full-time equivalents (FTE) allowed, the number of programs controlled by the company and the size of the budget for the financial year. Alone these factors do not provide a full perspective of the performance of an organisation but together with four perspectives it can.
● The customer's perspective
The managers of ISCA should know if their organisation is satisfying customer needs (Saebi and Foss, 2015, p.200). They should ensure whether the products in the form of machinery and tools are satisfying their daily needs. They should ensure feedback systems to ensure that how the customer sees them.
● Financial perspective
ISCA should focus on the profit and market share of the company. For the public sector, financial results could include the results-oriented measures in compliance with the Government performance and result in Act in 1993. They should look forward to the relationship with the stakeholders and the politicians.
● Learning perspective
ISCA’s focus towards innovation, improvement and learning ties its brand value. The managers should have only one vision in their minds and that is to continue improving and delivering same ideas of innovation for a long period of time.
● Business process perspective
The managers of ISCA need to focus on all the critical internal operations that enabled them to satisfy the needs of the customers. The true process of excellence will be a method towards implementation of a balanced scorecard pertaining to performance.
The collection of data, breaking bottlenecks in workflows and managing inventory are the key factors that will be recommended to ISCA. Productivity can be improved by collecting more and more data. Collecting data regularly helps in reflecting on patterns and cases. Tracking the number of production hours as well as the number of productions will help in the processing methods. Similarly, setting up of milestones in manufacturing processes and breaking the small milestones helps in the process control. Finally avoiding stalking up of the inventory will help in removing hindrance from the production methods.
In this study, detailed information regarding the relevance of the value chain of ICSA has been given. The business strategies involved the competition of the company with the potential rivals and all the relevant information needed for budgeting has been discussed. A complete analysis of the controlling sector of the manufacturing company has been done. Two decision-making situations have been discussed. Finally, recommendations in the form of strategies to improve productivity have been provided.
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