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Reduction in Production Rate

Describe about the Accounts for Managers for Competitive Economic Environment.

Most of the companies operating in the competitive economic environment use extensive strategies to increase their competitive advantage. One such process is the reduction in the production rate in the various manufacturing process. Therefore, organizations use faster processes in the manufacturing areas. This method can be implemented in the engineering process by reducing the wait times, operator attention, eliminating the manual actions by automation. The transition time can be controlled by profile rate of change control. The processing time can also be reduced using by override control. The processing time is also reduced through better detection at the end. The workflow in accordance to engineering needs to be realized along with tracking the reports to evaluate the customer and financial satisfaction. A balanced scorecard based on the information gathered is necessary to be created so that the process can be faster (Shen, and Liao, 2013). Therefore, an efficient monitoring of the process can result to reduction in the production rate.

The administration part of an organization can be increased through quality and effectiveness of the communication, efficiency and quality of the information retrieval and storage and an effective process control. A good relationship between the administration and the other departments will result to a faster process thus increasing the market potential for an organization.

An improvement in the quality of the production rate is essential for the development of an organization. The benefits of improved quality in a organization are as follows:

Customer Satisfaction: The improvement in the quality will result to an improved product and services and therefore will result to a better satisfaction among the consumers as they can fulfill their desire by consuming the product. The increase in the satisfaction level will help to generate customer loyalty towards the organization thereby holding a significant market share.

Profit: Improvement in the quality will lead to higher sales for the firm and thus will lead to higher revenue in the market. The main motive of every organization is to earn profit from the market and thus, improving the quality is essential (Yan,and Li, 2013).

Goodwill: The goodwill of a firm will increase once the sales of the product offered by the firm increases. The firm will therefore establish a place in the market because of its increased goodwill and the customers will be attracted towards purchasing their product.

Efficient Monitoring of Process

Efficiency: The efficiency and the productivity of the organization will increase drastically once the quality level develops thereby increasing the productivity and decreasing the level of errors in the manufacturing unit (Davenport, 2013).

Employee Moral: The moral of the employees increases once there is efficient productivity in the organization. Efficient productivity will bring in a good working environment within the organization thus bring in harmony and peace. A good working environment will motivate the employees to give out their best thereby increasing the competitive nature of the firm.

Helpful in Decision-Making: The improvement in the production rate will help in detecting the errors with respect to the production process and thus, the management can make effective decisions with respect to the production thereby implementing new and better strategies into the business.

Production process are instrumental for any organization to scale up efficiency of the employees and manufacturing function as a whole but increasing the rate of process may create problems and can decrease operations of the production. Therefore, the potential problems arising out of increasing the speed of the process are as follows:

More focus on the Process rather than the people: In order to standardize and sanitize the level of work in an organization, the management of a firm tries to make every work professional rather than personal. The management looks after the processes rather than the employees to solve any problems and it always does not work as there lacks the vision and inspiration.

Overdependence on meetings: Collaborative work process does not require too many meetings for any sort of action or decision. Meetings will lead to ineffectiveness of the employees and the workers as they are always in meetings rather than working.

Lack of clear Vision: It is important for organizations to maintain a clear vision, mission and strategies. The companies having a proper vision will reduce the level of error in the production. But, by increasing the production process, the supervision of errors reduces (Gargani, and Strong,  2014).

Overstress on the machines: With the increase in the production process, the machineries get overstressed thereby supervision over the machines are necessary to maintain the quality of the product.

Steve Smith’s observation reveals that decrease in inventory results to increase in the sales for the organization but XYZ does not recognize the fact but only remunerates the manager whose factory has not increased the sales but has increased the profit through any other means. The reduction in the inventory is a reduction in stock and therefore loss of wastage and so the factory in Adelaide has actually increased sales though net profit has not been created. The factory in Brisbane is having a net profit but the inventory stock is low so the sale is less. Therefore, it is seen that there exists a chance of stock blockage leading to wastage in the future. the net profit can be increased by rising the price of the product thereby geberating profit but not increasing profit. But, Adelaide on the other hand increases sales by keeping the price low thus not gaining profit. Thus, it is necessary that both the managers get a commission as one is gaining sales but the other is providing profit.

Improvement in Quality

There exist a lot of conflicts when any organization announces its commission over the net profits as it is seen that net profit of a firm does not always indicate the competitive edge of a firm. The position of a firm in the market is indicated from its sales and market share along with net profit. Thus, net profit cannot be the only factor to determine the bonus of managers (Steven, 2014). The net profit can be manipulated by changing the figures in the income statement and the cash flows but the position of a firm can only be determined through how much sales the firm produces. If net profit becomes the only basis of bonus payment, then all the managers will try to increase net profit without looking at the firm’s strategies and thus will not focus on increasing the sales as much as profit.

The material variance and labor variances are major factors, which are necessary for any organization to determine its production process and profit margin. According to this problem, Dream Housing Ltd manufactures four styles of homes using standard costing method. It is also found that the material variances are favorable with respect to labor variances, which is unfavorable.

The labor efficiency variance indicates measures the capability of labor to perform according to the expectation. This variance is useful to determine the production process areas that use more labor than expected. An unfavorable variance shows that the efficiency of labor has decreased due to inadequate work instructions, in equilibrium with the standard mix of employees and the actual mix of employees present. Such an incident also takes place due to inadequate training as the training was not according to the actual level.  Labor variance is useful in realizing the actual amount of time required for manufacturing a product and therefore a favorable labor variance would indicate efficient level of production along with quality products (Fisher,  and Krumwiede, 2015).

Material variance on the other hand shows the actual amount of material used and the standard amount predicted for use. It depends upon the scrap amount of material, material quality, spoilage and the transportation used for transfer. A favorable material variance indicates that the amount of spoilage and wastage of the materials along with less scrap of the materials. The actual amount of used material is closer to the expected amount thus, lowering the cost of materials.

Potential Problems of Increasing Production Process

The analysis of the production costs and the variables included in the manufacturing process of an organization is helpful in realizing the breakeven point of the organization. The breakeven analysis tries to evaluate the relationship between the breakeven volume and the major variances involved in the manufacturing process namely the labor and material variance. The analysis therefore helps the management to find out the ways to increase the favorable condition of labor and measures which can be taken to motivate the labors to stay in the organization and provide their optimum best for the organization (Isberg, and Pitta, 2013). The material variance is favorable in the desired company and thus measures to retain and improve the use of material and reduction in the waste and spoilage of materials.

Particulars

A

B

Cost/Unit-A

Cost/Unit-B

Direct materials

260,000

360,000

13

12

Direct labor

40,000

60,000

2

2

Variable overhead

60,000

75,000

3

2.5

Variable selling and administrative expense

60,000

60,000

3

2

Total variable expenses

420,000

555,000

21

18.5

The reason behind budget A having high costs and low forecast of sales are due to the selling price estimated for the product. If the selling price is closer to the cost of goods sold then the price then the profit will be lower. The quality of the product along with the production technique also takes into account. Budget A uses a bottom up approach, which uses more complex method to analyze the original system and the sub-systems to come up to a new system. Budget A uses more amount of variable and fixed costs to increase sales and thus the cost become higher (DRURY, 2013).

Budget B has more sales than the costs due to the fact that it uses more extensive technique and results to higher sales than the costs of goods sold. This has only been possible due to the fact that this budget uses the method of implementing the lowest cost possible to increase sales.

The top down approach is a clear indication of command and control an therefore it depicts the clear and consistent goals along with the knowledge about the real reasons of cause and effect. The level of authority is also well explained in this process and therefore the rules decided in the top level is well aligned with the rules in the bottom level of management. Therefore, the top down analysis is the appropriate approach for planning and implementing the best method thereby reducing the costs and increasing the revenue (Shepherd, 2015).

The two groups A and B can take the help of each other and organize plans and process thereby using the positive aspects of each group to come up with an idea to create a new budget will be the most efficient budget for implementation in the organization. The idea of merging the positive traits of budget A and B is vital to introduce a new plan efficient and effective for the increase in the market share, profit and sales for the organization.

Observation of Steve Smith

Consensus budgeting has a better prediction than individual forecasts and there are certain differences among the individual and the consensus preparation depending the period of accounting. Thus, consensus budgeting is useful in creating an appropriate strategic leader and team that is useful for effective decision making. Such a budget helps to create a long term  vision of the firm thereby creating an efficient vision and mission plan to increase the competitive advantage in the organization. Such consensus is helpful in building models and for an effective business plan, which will lower the costs of production and will result in higher revenue and profit for the firm (Mikesell,  and Ross, 2014).

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Davenport, T.H., 2013. Process innovation: reengineering work through information technology. Harvard Business Press.

DRURY, C.M., 2013. Management and cost accounting. Springer.

Fisher, J.G. and Krumwiede, K., 2015. Product Costing Systems: Finding the Right Approach. Journal of Corporate Accounting & Finance, 26(4), pp.13-21.

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