Discuss about the Management Accounting for Telebox Ltd.
The organizations working in the current market condition aim to maximize their profit in order to strengthen their market share and increase their competitive edge in the market. All the organizations working in the competitive economic environment aim to reduce their cost of production in order to increase their profit and not affecting the external process of business (Acciaro, Hoffmann and Eide 2013). With respect to Telebox Ltd, manufacturer of wireless set top box, it is seen that the organization has various suppliers like suppliers of remote control, circuit boards, wires etc. The organization even faces different other production cost related to research, design, marketing, web-site maintenance, labour cost etc. The main of Telebox is to evaluate the expected cost for each unit of wireless set top box. It is seen that a cost gap is created and the amount is £5.26.
The target cost gap refers to the predicted cost less the target cost. The management of Telebox Ltd can thereby set up benchmarks, which will be helpful in improving the target costs through the improvement in the technologies and the operations. There are various techniques that can be implied in order to reduce the cost gap (Liu et al. 2015). The organization can decrease the number of components that are required for the manufacturing process and for other auxiliary needs that are even included in the cost of production. It is viable for the organization to use standard tools and materials wherever deemed necessary to decrease the gap between its rivals. One of the most important ways to increase productivity and quality of service is by providing adequate and proper training to its labours and employees so that they can attain relevant knowledge about the new and innovative techniques. It is of profit for the firm to use various types of materials so that the cost of production comes down to a minimum. The employment of cheaper staff by appointing employees from near the location of the industry can also be effective.
The introduction of new and improved technology into the business will not only increase productivity and quality but can also reduce the cost concerned to production. The firm should take note of all the non-value added activities related to production and should try to eliminate all such activities as such activities are a liability to the employees. The reduction in the labour cost and raw materials is also a proper way as it would eliminate the chances of any waste in the production and will motivate the employees give their best. It is of primary concern to increase productivity so that increased production will even bring down the bulk cost of production. Telebox Ltd has to transport its raw materials and auxiliary products from its suppliers and thus require shipping and delivery cost to be paid (Muennig, and Bounthavong 2016). The organization tries to reduce the cost of delivery and shipping by asking for special discounts or by bringing in bulk of raw materials in one consignment thereby reducing the number of shipping trips. Telebox Ltd even tries to use Kaizen costing method as such a method detects all the costs at the initial stage of production thereby limiting the organization to invest in non-value added activities.
It is seen that the desired cost of Telebox Ltd is £ 156.00 but the total cost of per unit wireless set top box sums up to be £ 161.26 showing a cost gap of £ 5.26. Therefore, in order to reduce the cost gap of per unit production of wireless set top box, the firm needs to implement the above said techniques (Hamdy, Hasan and Siren 2013). Telebox Ltd tries to reduce the cost gap by reducing the raw materials used for the manufacture of a product. They try to eliminate the older raw materials and include new raw materials like the “Goldtooth wireless technology”, which not only enhances the value of the product but even lowers their cost with respect to the other technology used.
The organization purchases circuit boards from suppliers of Taiwan at £ 90 each inclusive of delivery charge. The firm tries to reduce the price of the circuit boards by asking the suppliers to provide discounts to them as they are purchasing in bulks. The firm even tries to reduce the cost by lowering the delivery cost (Zimina, Ballard and Pasquire 2012).
Metal solders are also needed by the firm as it is used to make connections between the wires and the circuit boards. The management in order to decrease the cost is deciding on using low grade solder. It is even seen that these lower grade solder renders waste whereas the higher grade solders does not give out any waste. There is only a difference of £ 1 between the higher and the lower grade solders (Botkin, Elmandjra and Malitza 2014). But, it is recommended that the firm uses the higher grade solder as it would not give any waste and thus the cost of higher grade solder will be lower than the lower grade solder.
Telebox currently purchases remote control for their set top boxes from a supplier. The remote control shipment costs £1250 inclusive of shipping costs for 1000 units of remote controls. In order to reduce this cost, the design team of Telebox is programming an idea of using the existing remote of the televisions for the set top box so that an extra remote is not required by the customers (Gaillard and Mercer 2013). The application of the existing remote for the set top boxes will also reduce a significant amount of cost for the organizations, which in turn will reduce their cost gap.
The main aim of every organization is to maintain a price of their product in the market that is lower than their rivals so that the firm survives in the competitive environment. Therefore, the organizations thereby try to detect their costs the the best possible way. The detection of cost is an important aspect of every organization as it is beneficial for the development of the organization (Kaplan and Atkinson 2015).
Target Costing is one of the most effective methods used for the determination of the cost of the product at the design stage and decrease the cost of the commodity before they are produced. Therefore, it is seen that the main aim of target costing is to manage costs before they emerge as a product.
Target costing is generally used in the initial stage of the product life-cycle before product development and design stage of product. Target costing is even useful in ascertaining the production method of a new product. With respect to the concerned industry (Yazdifar and Askarany 2012) Telebox, it is seen that they are in a position to introduce a new set top box i.e wireless set top box, which can be installed with the television set without using any wires. The development of these new wireless set top boxes requires the need of target costing so that an estimated cost can be achieved. In the method of target costing, the process is influenced by the customers and is therefore concentrated on designing products and distributing them over the entire life cycle. Telebox, therefore has introduced this new product by looking the demand of the present customers. Target costing will therefore look into the strategic profit of and the cost management techniques to decrease the product costs throughout the entire span of the product.
The need of target costing appeared from the requirement of the manufacturers to enhance product cost management and product development. Target costing like other costing techniques like activity costing, kaizen costing etc are being adopted by companies like Telebox Ltd as they wanted to improve the product quality and productivity of their organization.
It is seen that target costing is done generally at the initial stage of product cycle where product development and product design is undertaken. Therefore, it is seen that product development and product design hold an important factor while analyzing target costing. Product development is the lifeline of all the organizations (Bock and Pütz 2016). The primary focus of product development is to convert the market need into reality, generating the tangible from the intangible and introduction new capital in the organization. The importance of product development is as follows:
New value to the Consumers
The most important reason for the creation of new product is to meet the value and demand of the consumers. Without satisfying the needs of the consumers, the organizations do not require any need to invest money in any new product. The need for the new and innovative demand for the value motivates the organizations to keep growing (Singh and Kumar 2014). It is seen that Telebox Ltd introduces wireless set top box as it finds out that this new product will improve the lifestyle of the consumers and will derive value to them.
Most of the new products are actually an incremental renovation over their previous version with some added countenance and performance. These commodities not only add new revenue to the organization but even acts as a boon to the society. The introduction of wireless set top box will reduce the any difficulties with respect to the wires and makes the box flexible and movable.
Continued Existence and Growth of the Company
The new and innovative products act as a lifeline to the organizations because if a firm does not improve its product according the changing time and preferences of the consumers they might wither away and die. The society is even served properly with the continuing product innovation thereby increasing the standard of living. The increase in demand will increase the profit of the organization and thereby result to the growth of the firm. Telebox Ltd with their wireless set box and low cost of production will thereby increase its revenue from the market thereby expanding their business and gaining market share (Navissi and Sridharan 2016).
Product design acts as an important factor that improves target costing with respect to the cost life cycle of a product. The product life cycle highly depends upon the designing of the product as it attracts new and existing customers in the market. There are various challenges that a firm faces while initiating a product design at the initial phase of product life cycle like high cost, long timescales to bring in a new product in the market as it requires extensive research and analysis. Product design even faces the challenge of uncertain output as it is always not for certain whether design of the product will meet the original demand of the consumers (Gopalakrishnan et al. 2015). It is very difficult to ascertain the changing needs of the consumers according to the change in time and thus creating a product design for the long term becomes very difficult.
However, every organization needs to look after the bright aspect of product design and undertake the same as it is seen that product design is useful in creating unique commodities that can bring about drastic changes in the market. Product design is even helpful in creating competitive advantage as their design creates advantage over the competitors. Product design leads to enhancement in reputation and increase in new opportunities helping the organizations to increase their market share and generate added revenue. Telebox therefore, looks into the factors of product development and product design and thereby tries to evaluate the cost through target costing.
It is thus seen that Telebox Ltd in order to establish its product in the target market will not only focus on reducing the cost gap but will also focus on target costing and evaluate its product development and product design so that they can increase their profit and establish a name in the market.
Outsourcing the web design:
As commented by Bock and Pütz (2016), web design is the management contract of a website and the overall online environment to a third-party service provider. Since Telebox is involved in many operational activities, outsourcing the web design is a viable option to conduct its other operations in an effective manner. In addition, outsourcing is mainly done to pass on some tasks in the hands of professionals, which would help in saving money for Telebox.
Product level and component parts:
The target costing method would help in reducing the time of the product cycle. This is the amount of time, which it takes and it begins from conception to market-ready product or service. Hence, with the help of reduced cycle time, Telebox could be able to eradicate the unnecessary steps and wastage, which do not add significant value to the product, which is WTSB, to the customers.
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