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Strategic Management : Multi Perspective Approach

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Question:

Discuss about the Strategic Management for Multi Perspective Approach.
 
 

Answer:

Introduction

This study deals with analyzing the concept of management accounting in recent era of accounting field (Webster, 2016). In this particular assignment, emphasis has been given on the accounting operations handled by a company named as Parker Limited. In the recent accounting scenario, it has been observed that most of the accounting researchers had differentiated the accounting standards in unique accounting systems based on the use of accounting methods. The current segment elucidates usage of accounting method by applying accounting systems (Senthilkumar, Maruthamuthu and Kannaiah, 2014). This act provides help to the potential users for ascertaining the cost of any given product. This will be even used for making the computation of profits and getting accurate results at the same time. In this study, analysis has been done for the company named as Parker Limited who manufactures as well as sell pen and pencil sets (Kamala et al. 2015). This company received positive feedback from the customers and decided in selling their products in the foreign markets. The main purpose of the report is bringing out the actual potentially of the offers and plans of Parker Limited. This can be done by calculating cost and profit by way of using cost accounting techniques (Kaplan and Atkinson, 2015).

Computation of Current Net Monthly Profit

Calculation of Monthly Profit

Particulars

Unit

Cost per Unit

Total Amount

Monthly Sales Revenue

10000

$7.50

$75,000

Manufacturing Costs:

 

 

 

Direct Material

10000

$1.00

$10,000

Direct Labor

10000

$1.20

$12,000

Variable Overhead

10000

$0.80

$8,000

Fixed Overhead

10000

$1.00

$10,000

Total Manufacturing Costs

10000

$4.00

$40,000

Marketing Costs:

 

 

 

Variable Marketing Costs

10000

$1.50

$15,000

Fixed Marketing Costs

10000

$1.50

$15,000

Total Marketing Costs

10000

$3.00

$30,000

Total Cost of Goods Sold

10000

$7.00

$70,000

Monthly Net Profit

10000

$0.50

$5,000

Table: Computation of Net Monthly Profit

(Source: Created by Author)

From the above table, calculation is made for understanding net monthly profit for Parker Limited (Groot and Selto, 2013). Addition to that, it helps in ascertaining the current cost structure as well as net monthly profit for augmenting the other offers. Therefore, current production cost of Parker Limited has been calculated for estimating their net monthly profit for a given financial year (Drury, 2013).

Recommended Offers from Educational Institutions

Calculation of Monthly Profit

Particulars

Unit

Cost per Unit

Total Amount

Normal Monthly Sales

10000

7.5

75000

Order from Educational Institution

2000

5.5

11000

Monthly Sales Revenue

12000

$7.17

86000

Manufacturing Costs:

 

 

 

Direct Material

12000

$1.00

$12,000

Direct Labor

12000

$1.20

$14,400

Variable Overhead

12000

$0.80

$9,600

Cost of Logo Inscribtion

2000

$0.60

$1,200

Fixed Overhead

12000

$0.83

$10,000

Total Manufacturing Costs

12000

$3.93

$47,200

Marketing Costs:

 

 

 

Variable Marketing Costs

12000

$1.50

$18,000

Fixed Marketing Costs

12000

$1.25

$15,000

Total Marketing Costs

12000

$2.75

$33,000

Total Cost of Goods Sold

12000

$6.68

$80,200

Monthly Net Profit

12000

$0.48

$5,800

Table: Calculation of Monthly Profit

(Source: Created by Author)

The above table indicates calculated done for the monthly set and offers taken from educational institutions (Balakrishnan, Labro and Soderstrom, 2014). Addition to that, it has been explained if Parker Limited will be accepting the offer from educational institutions for making the supply of 2000 sets at the rate of $ 5.5 per set for calculating monthly set (Ambrosini, Jenkins and Mowbray, 2015).

In case the offer gets accepted, then the total monthly net profit will fall by $ 0.02 per set (Ambrosini, Jenkins and Mowbray, 2015). By this, it is recommended that Parker Limited should not accept the offer based on profitability aspect.

Profitability aspects are not the sole aspect that needs to be evaluated at the time of undertaking business decisions. It is for this reason why Parker Limited should take into consideration other essential factors like cash inflows as well as production cost per set (Balakrishnan, Labro and Soderstrom, 2014). All the major aspects need to be taken into consideration that will guide company at the time of making financial decisions in the near future.

At the time of accepting the offer, it is recommended that Parker Limited should reduce the cost of goods sold per set (Senthilkumar, Maruthamuthu and Kannaiah, 2014). Addition to that, this will help Parker Limited in generating high amount of cash inflow by way of gaining higher net profit in the upcoming financial year. Therefore, it is essential for considering the other factors that the company will identify while accepting the offer (Balakrishnan, Labro and Soderstrom, 2014). Each of the factor should be taken into consideration if the company required accepting the offer for given period of time.

Profitability of Long-term Government

Calculation of Monthly Profit

Particulars

Unit

Cost per Unit

Total Amount

Normal Monthly Sales

10000

$7.50

75000

Order from Educational Institution

5000

$4.00

20000

Monthly Sales Revenue

15000

$6.33

95000

Manufacturing Costs:

 

 

 

Direct Material

15000

$1.00

$15,000

Direct Labor

15000

$1.20

$18,000

Variable Overhead

15000

$0.80

$12,000

Fixed Overhead

15000

$0.67

$10,000

Total Manufacturing Costs

15000

$3.67

$55,000

Marketing Costs:

 

 

 

Variable Marketing Costs

15000

$1.50

$22,500

Fixed Marketing Costs

15000

$1.00

$15,000

Total Marketing Costs

15000

$2.50

$37,500

Total Cost of Goods Sold

15000

$6.17

$92,500

Monthly Net Profit

15000

$0.17

$2,500

Table: Calculation of Monthly Profit

(Source: Created by Author)

The above table shows the calculation of net monthly profit. It happen in a situation when Parker Limited will be accepting the long-term government contract for rendering 5000 sets at the rate of $ 4.00 per set (Balakrishnan, Labro and Soderstrom, 2014). Certain aspects should be taken into consideration that will enable understanding the aspect of long-term government contract with particular price structure. It is thereby important for the company in making innovative ways for generating revenues for a given financial year.

Parker Limited will earn only $ 2500 as total profit as well as profit per set of $ 0.17 (Balakrishnan, Labro and Soderstrom, 2014). Addition to that, Parker Limited will be generating very low amount of profit by way of accepting an offer. This is based upon total profit volume as well as profit per set. Therefore, Parker Limited will get $ 4000 in advance for every month. These particular aspects will be helpful for Parker Limited as they have issue with shortage of cash. Parker Limited is not suffering to any of the above-mentioned issues, so it is advisable to the company in rejecting the offer (Ambrosini, Jenkins and Mowbray, 2015). Rejecting the offer will help the company because it will make the company suffer with many potential issues that should be avoided as far as possible.

Lower pricing for the new foreign market

Calculation of Monthly Profit

Particulars

Unit

Cost per Unit

Total Amount

Manufacturing Costs:

 

 

 

Direct Material

20000

$1.00

$20,000

Direct Labor

20000

$1.20

$24,000

Variable Overhead

20000

$0.80

$16,000

Fixed Overhead

20000

$0.50

$10,000

Total Manufacturing Costs

20000

$3.50

$70,000

Marketing Costs:

 

 

 

Variable Marketing Costs

20000

$1.50

$30,000

Fixed Marketing Costs

20000

$0.75

$15,000

Total Marketing Costs

20000

$2.25

$45,000

Total Cost of Goods Sold

20000

$5.75

$115,000

Less: Sale in Domestic Market

10000

$7.50

$75,000

Sale in Foreign Market

10000

$4

$40,000

Table: Calculation of Monthly Profit

(Source: Created by Author)

From the above table, calculation is done for gaining understanding of the minimum prices in the new market (Balakrishnan, Labro and Soderstrom, 2014). This means new market penetration will take into consideration on how Parker Limited should offer the sets at lower process to the newly targeted customers. It is advisable to Parker Limited in lowering the price at such a range whereby it can generate zero profit as well as does incur any loss at the same time (Senthilkumar, Maruthamuthu and Kannaiah, 2014).

It is important to consider the fact that fixed expenses are constant in nature for shorter time based on certain product volume (Ambrosini, Jenkins and Mowbray, 2015). This will be helpful in the long run whereby the offer will be changing at the same level of production. Addition to that, it becomes impossible in computing the minimum price for longer period of time. This is for the reason why fixed assets will not be same at any point of time. It is recommended to Parker Limited in changing the minimum range of price based on fixed expenses. Therefore, new selling price will be adopted by Parker as it will help in long run. This will be considered only if the price can help company in gaining zero profit and zero loss (Balakrishnan, Labro and Soderstrom, 2014). The above analysis help in gaining understanding on the application of minimum sale price in a given production process

Profitability of the offer from outside supplier

Calculation of Monthly Profit for Order from Outside Supplier:-

Particulars

Unit

Cost per Unit

Total Amount

Sale to Outside Supplier

10000

$7.50

$75,000

Monthly Sales Revenue

10000

$7.50

$75,000

 Costs of Purchase:

 

 

 

Purchase from Outside Supplier

10000

$4.20

$42,000

Fixed Overhead

10000

$0.70

$7,000

Total Manufacturing Costs

10000

$4.90

$49,000

Marketing Costs:

 

 

 

Variable Marketing Costs

10000

$1.10

$11,000

Fixed Marketing Costs

10000

$1.50

$15,000

Total Marketing Costs

10000

$2.60

$26,000

Total Cost of Goods Sold

10000

$7.50

$75,000

Monthly Net Profit

10000

$0.00

$0

Table: Calculation of Monthly Net Profit

(Source: Created by Author)

From the above table, it is easy to understand the expected profit or loss at the time of generating an offer from outside supplier (Balakrishnan, Labro and Soderstrom, 2014). In other words, the table exhibits that Parker Limited will generate no profit at the time of accepting the offer at the same time. It can be clearly understood from the above calculation that Parker Limited can reduce the total assets at the time of accepting the offer. It will incur zero profit because of higher cost of goods sold per unit. Therefore, it is recommended that Parker Limited should not accept this offer given by outside supplier (Senthilkumar, Maruthamuthu and Kannaiah, 2014).

 

Profitability of the Offer from Outside Supplier with the Rental Plan

Calculation of Monthly Profit for Order from Outside Supplier & Rent:-

Particulars

Unit

Cost per Unit

Total Amount

Sale to Outside Supplier

10000

$7.50

$75,000

Rent from Building & Car Parking

 

 

$5,500

Monthly Sales Revenue

10000

$8.05

$80,500

 Costs of Purchase:

 

 

 

Purchase from Outside Supplier

10000

$4.20

$42,000

Fixed Overhead

10000

$0.70

$7,000

Total Manufacturing Costs

10000

$4.90

$49,000

Marketing Costs:

 

 

 

Variable Marketing Costs

10000

$1.10

$11,000

Fixed Marketing Costs

10000

$1.50

$15,000

Total Marketing Costs

10000

$2.60

$26,000

Total Cost of Goods Sold

10000

$7.50

$75,000

Monthly Net Profit

10000

$0.55

$5,500

Table: Calculation of Monthly Net Profit

(Source: Created by Author)

From the above table, calculation is done for understanding monthly net profit or loss for rendering properties for rent (Balakrishnan, Labro and Soderstrom, 2014). This particular attributes aligns with the offer gained from the outside suppliers. This reveals the fact that Parker Limited will be generating total profit of $ 5500 at the time of taking business decisions. This will help company to evaluate the offer from outside supplier, which cann be accepted within the provision of rental income (Senthilkumar, Maruthamuthu and Kannaiah, 2014).

Conclusion

At the end of the study, it is concluded that it is essential for making comparisons as well as reviewing the current net profit as well as cost of the profit structures. This has been indulged by after making marketing offers as well as plans where marketing strategy prevails and aims at generating higher profit per set. Addition to that, it is necessary to carry on with the current marketing policy of Parker Limited. This is for the reason as this company should accept the offer from the educational institution as discussed in the above calculation. This will happen at the time of accepting the offer for the company that aims at accumulating funds for generating high amount of profit. It has been analyzed that Parker Limited will be sacrificing its profit for short-term purpose based on penetrating activities. On the other hand, it should not even continue for longer period as it will be increasing prices as obtained from a favorable amount of market shares especially in the international market in the most appropriate way. Moreover, it can also consider the offer from outside supplier only if it can utilize its assets to generate rental income of $5500 or more.

 

Reference List

Ambrosini, V., Jenkins, M. and Mowbray, N., 2015. Advanced strategic management: A multi-perspective approach. Palgrave Macmillan.

Balakrishnan, R., Labro, E. and Soderstrom, N.S., 2014. Cost structure and sticky costs. Journal of Management Accounting Research, 26(2), pp.91-116.

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

Groot, T. and Selto, F.,2013. Advanced management accounting. Pearson Higher Ed.

Kamala, P., Struwig, J., Bornman, M., Boersman, R., Vermaak, M., McGill, M. and Taylor, P.,2015. Principles of Cost Accounting. Oxford University Press

Kaplan, R. S. and Atkinson, A. A., 2015. Advanced management accounting. PHI Learning.

Senthilkumar, K., Maruthamuthu, K. and Kannaiah, D., 2014. Advanced Cost Accounting. Vikas Publishing House

Webster, W. H., 2016. Accounting for managers. PHI Learning.

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