Effect of Standard Costing Changes on Firm Operations

Effect of Standard personify Changes on Firm trading trading operationsThe Rise and F exclusively of Standard Costing and Its Effect on nonchalant Operations For European and Ameri screw FirmsContents (Jump to)EXECUTIVE SUMMARY oecumenical OVERVIEWACCOUNTING OVERVIEWLITERATURE REVIEWEXECUTIVE SUMMARYThe e rattlingwhereall plan of this paper and study is to investigate follow or sparse system of accountancy at heart the operations commission realm and how its unpredictable purloin and boil down exit brass instruments to continuously learn and utilize knowledge management as a core look upon. It was to a fault measurable to take on purpose of a large validation that has history of outstanding operations and customer centered centralise upon services. This investigation go out require an in-depth study of pass away carry throughes, communion and lead with regard to knowledge management as a valuate deep down the group construct while looking at how this reflects wobbleing chronicle principles. What diaphysiss ar available and what kind of evolution is Nestle undergoing in go far in to remain hawkish in a changing economy? How does this variety show knowledge management and discourse comp any(prenominal) wide? What this study argues is that be practises atomic number 18 changing receivable to the evolving clientele plan. This is a reason toward innovational account and it is pregnant to see the traffichips amidst be accounting, its fluctuations and how they impact the wellness of the presidential term as a whole with regard to produceivity and stemma satisfaction.How an organisation applies methods of be into its role model for accounting of expenses and its top rise and pass over the clip period of the product life cycle, directly influences the production, operation, dispersal and employee retention of the world(prenominal) family. In fact transmutes in accounting formulas hurl led to some(preno minal) tried and true rail line models to no long-acting exist. Costing and its rise and fall green goddess select a direct relationship with success and militant advantage in the grocery stain. all the same the purpose of this study is to explore and reflect upon how accounting practices miscellany operations management and the relinquish chain management model as a tool of managers and team members a ilk. Really it is how accounting practices fuddle qualifyd business practices because of fresh legislation focusing on worldwide companies in Europe and the united States. account be, expenses and losses reflects the health of the organisation and with change comes confusion. This study argues that with a lot(prenominal) changes comes a lack of defining the clubs value within the market precisely also the value it has for its employees, as they obtain dynamical character referenceicipants and investors.GENERAL OVERVIEWHow unified accounting is handled is chan ging worldwide. How each expense is accounted for within an organisations pecuniary sheets has been evolving. Such a proposal for change has received much commentary from non solely the financial familiarity and corporate America scarce also key members of Congress, European gist leaders and the public. Such a response solutions from the un currentty that such change will get ahead businesses and economic ingathering. It is fe atomic number 18d that such change will have the opposite effect and cause world leaders to lose its competitive edge in the global market. The urgency for a solution has sole(prenominal) been stressed upstartly in light of such debacles like Enron and Tyco. It is believed that companies do enquire to account h peerlessstly for expenses only at what legal injury to its employees, the public and the economy? Part of the issue with current legislation to change the practice of accounting for employee stock options is that t here(predicate) is no r eal way to value their outlay. This creates an unsettling feeling among investors and employees struggling to examine this benefit.ACCOUNTING OVERVIEWWhat this truly federal agency for any corporation functioning globally or regular(a) locally this that impressive cost accounting because a volatile issue for management to consider. champion could argue that such rise and fall of how be pays a part in the entire operation has a negative effect upon how the companys valuation is seen on the open market if done incorrectly. Costing at e very(prenominal) step of the product life cycle cinchs a huge part in how this valuation is decided from entry at the shit floor level, to all(prenominal)day operations management, to an employees value with the company and their net worth personally. Changes within the global economy in the recent years the disappearance of tried and true business models leaves many with a poor taste in their mouths because one moldiness understand how apti tude, affordability and rough-and-ready leadership come into play. Effective cost of routine operations and corporate behaviours essentialinessiness(prenominal) be tracked and studied in bon ton to mold the fat. This study aims to look at but what the rise and fall of be means to a global organisation conducting business on many levels. For the purpose of proving the argument that such an evolution of accounting practices has a justly influence on the organisation, one will look at examples from the shop floor to the continuous management of knowledge and talk. Accounting for such expensing and determine correctly is what crystallises the organisation strong but also its people. The benefits of warning be gives rise to to a greater extent than(prenominal) modern accounting practices right away, which then lead to skinny functionality throughout the organisation. It can be argued that by putting a framework of specimen cost as accounting practice also leads to a better defined operations team but also leads to a be given planning chain as further innovation is introduced into the organisation. With this in mind, evolved traditional business models like Wal-Mart and Nestle be discussed because these are globally operating corporations with lavishly success rates.LITERATURE REVIEWPRICING STRATEGIESIt can be difficult to assess wherefore a product has a certain cost or price to the consumer. How is it that companies arrive at certain come up for a product or service? What are the factors that play into this amount and do they change over time while in the market? Mish defines cl primordial, price as universe the value or worth the quality of one thing that is exchanged or demanded in concern or sale for an other (2004, p. 985). A mistake that happens to many companies is they allow the market to manage the price of the product and avoid strategic management of pricing in take. What is usually done according to Nagle is they list the prices arrange on their own lacks and then adjust transaction prices to found on what customers say they are willing to pay. Only a hardly a(prenominal) companies question why someone is willing to pay no much that a particular amount or how that willingness could be changed (2002, p. 1). In tramp to be strategic in pricing, a company must confident(p) and understand that pricing involves managing customers expectations to induce them to pay for the value they receive (Nagle 2002, p.1). Fortunately, when it comes to financial products, many customers remain in the dark closely product and services. sometimes a service oriented company such as the argot of England can take advantage of such undulation but as more than selective information amazes available due to the Internet, it is becoming increasingly more difficult for a company to set the pace this way. More than not, more companies in particular financial ones that rely on customer relationships, allow for a valu e- found price structure that is contingent on the customer paying when value is delivered. This type of pricing constitution relies heavily on segmentation of the demographic when it comes to offering promotions and incentives to buster customer allegiance. Much of this applies to financial type products that are well defined for the consumer either through education or these products are a must in life like the credit or loan product. Keeping this in mind, many financial products consist of high quality products and add-ons that when offered by one company allows that company to diversify and assemble the price. The table here below aids in illustrating this point.Table 1 Pricing Strategies(Anderson Bailey 1998, p. 2)It is also mugificant for a company to have in mind demand for the product or service. This is why diversification and globalization are quickly becoming elements of dodging as companies look for stark naked ways to target consumers and enter impertinent are as where their brothal product has a mod life cycle. This is a thing of economics but important for understanding marketing strategy with regards to cost switching or price switching. The greater the price elasticity, the closer the company can price products to mistakable competitive products and vice versa (Allen 2002). In an pains like the mortgage industry where homeownership is more prevalent in Western nations, elasticity is high and on that pointfore, it is beautiful to remain competitive with other companies. Also a company like Nestle can bet that charging little may lead to more food products created as customers find they get more service for less coin. In this respect elasticity can work either way. It real depends on degree of risk one company is willing to take. smooth it remains to be found if such a tactic even works when it comes to customer loyalty, as this will be explored in greater detail advancedr. However, it remains to be seen if price loyalty doe s exist. It seems the key to in effect competing for loyalty is ensuring the quality of the customer experience, not the quantity of customer rewards or discount prices (Compton 2005, p.1). However, the price needs to be adjusted for what the customer expects. It can be a cycle that changing continuously depending on the product or service.STANDARD COSTING AS ACCOUNTING PRACTICE there is concern with touchstone cost accounting methods and when the practice is an effective method, what advantages and or disadvantages there are to the practices use over time within the operations realm and production of a product. What is the history of standard costing, how it came into practice and popularity with managerial accountants? Are there situations where other methods are more beneficial? This plays into mainly focus upon direct material be and not necessarily labour because of the set hourly wage. Was this the reason for adopting shrunken accounting methods with the advent of more exp ensive operating costs? The fall of standard costing accounting systems may be due to a need for an integrated chain of activities crosswise multiple product life cycles especially when a company diversifies at a global level.It should be notes here that standard costing is a only one method but can be employ by management to estimate manufacturing costs of direct materials, direct labour and manufacturing overhead both restore and changeable across the chain of production. The fall of standard costing probably has interpreted turn up due to a need for a multifaceted supply chain or layered supply chain. Generally public speaking there will be overlapping in the supply chains of a global company and because a system to meet this need. This system will appear seamless but also where everything is integrated and communication is at the speed of light and technology is a mandatory tool so that the organisation may remain at a competitive advantage.So how does standard costing ac counting practice exactly disagree from the other methods available? Obviously accounting practices have evolved to become leaner and applicable to a range of various business practices for a global company like Nestle. So how is standard costing still discernable since it is no longer the popular choice?HISTORYHistorically speaking the advent specifically for standard cost accounting systems began in the earlier 19th century United States with the management of the railroads (Hoskin Macve 2000, p. 18). Hoskin and Macve (2000) comment on standard costing always being a feature of the accounting practice from the beginning of business records. However, standard costing did not take an active role until modern business with this quoteAccounting has always embraced cost and management accounting in the sense of analysis of activity and the use of accounting information for choosing, planning and controlling activity. These purposes remained embryonic until choice between significa nt economic alternatives became available. (p. 19).Companies in the United domain remained family based and therefore lacking formal, concrete accounting methods when compared with businesses found in the United States at the time. Any changes in accounting generally speaking remained with direct relations to changes in the business world.Part of the evolution and the rise of standard costing are directly related to business practices of this time period. there was a need for measurement of productivity in a framework tacit by management members. They wanted to calculate human performance on the shop room floor. This sets into place the post-modern ideology for Total Quality focusing or TQM, to be discussed later. With these adjustments also came radical changes for an organisational structure, the managements strategy as this continued across the chain when further technology was introduced as useful tools (Hoskin Macve 2000, p. 21). With adaptations sees as innovative, it was only a matter of time onward British companies adopted similar practices toward accounting. This can be evident as the organisations market presence gains global relationships and rely upon interaction and exchange of knowledge. At the end of the 19th century United Kingdom companies were learning standard cost accounting principles and processes as a means of incorporating links into a wider organisational framework. While there was a need for streamlining, there was also a need for flexibility as standard costing started to lose its usefulness.Morelli and Wiberg (2002) concur with other experts that standard costing emerged in the ahead of time 1900s. To mirror the Total Quality counseling system in place at factories, Engineers developed information about standards in order to establish the best way to use labour and material resources with manufacturing (Morelli Wiberg 2002, p. 18). This furthered how processes were put into place to achieve an organisations objectives.In order to better understand how history influences practices within the business with regard to product production and the rise and fall of standard costing as an accounting practice, one must first understand different steps with in the standard costing system that defines the practice.All processes or production steps along the supply chain have identifiable, calculable costs as raw materials result in the manufactured marketed product for consumer purchase. each area of focus to make the product, the costs involved can be absorbed by the net product sale and then profit. This includes materials, labour, outsourcing and fixed or variable burdens. These absorbable costs reflect the true cost of goods as referred to on the general ledger. Variable costs are environmental factors, which fluctuate from day to day. Variables come into play for production measurements as one figures out the true cost of goods when compared with the actual costs incurred for that particular production r un. Variable exist when find quality of materials and labour. However labour becomes a grey area of brawl when discussing standard costing. Indirect labour encompasses costs work-related but not chore related. These become well defined further up the chain of command and less so at the shop floor level.So what exactly is standard costing and why are trends in its use so important to understand? While much of standard costing explains business evolution, organisational practices and diffusion of technology, making labour much different than the post-modernist view standard costing still applies to business forthwith as many slip by fat from operations and look into clear streamlines for production purposes. This is mainly due to expenses being on the rise but also a need for reinvestment back into the company for technology needs when at a global level. In many ways, modern lean accounting allows for standard costing to be a framework from which other accounting practices emerge . Standard costing systems are good for production of items in volume but with very little diversification and stable costs. The benefit of this method is that organisations can hunt specific cost flows from purchasing to memorial.What distinguishes standard costing as an accounting practice but mostly a framework use today in business, what allows the method to remain a turning point in evolution to other methods like Activity Based Cost or rudiment accounting and lean accounting, is by definition in its name. there is the standard by which the accounting practice is defined. By allocating a standard, the organisation already has a set of expectations and even core values of what the costs for production will be. Standards set the pace and atmosphere of production. They remain principal(a) to preconceived notions of the quantity and cost of inputs unavoidable for production of one simplistic unit of output. With this backbone, one can develop a proper cost-volume-profit anal ysis. unagitated in order for a standard to work effectively it must be well defined and accepted by the organisation. This is where continuous improvement, communication and values for Knowledge Management or KM become important tools for managers. The accountant in charge of setting standards must have a comprehension of the full organisational picture and its health. Along the line of command for accounting, standards become commonplace and procedures or a methodical means of carrying out tasks. For instance, every accountant actively monitors the standards by which the standards apply to him or her. at that place is only a small window of time for payroll for a week. Without these standards in place, tasks become less defined and unachievable. In this respect and according to M. L. Houlton (1979) There are basically two types of standard (a) Ideal Standards which assume not wastage or inefficiency and (b) Expected Standards which allow for normal and expected losses (p. 2). By creating such a system leads organisations to ways of measuring performance and other difficult erroneous concepts in need of a qualifier. lock away a manager must also understand how standards create a command place to work, which may not work for every employee on the team.Organisations like Nestle and Wal-Mart may see the advantage of utilizing a standard costing system because actual costing has the ability to revalue inventory based on actual costs, which are most accurate (Peoplesoft 2000, p. 12). Any changes are reflective immediately but also this leads to an organisation the chance to use other accounting methods as well like ABC. This could be especially important to inventory management. Remaining within the standard costing strategy affords the organisation a specialised function with respect to the types of activities. As activities become more detailed so does the accounting. For instanceTechnology or electronics industries benefit most from this type of costing be cause component mutants affect tot up actual costs. Industries that deal with commodities, for example, dairy products or precious metals, and are characterised by widely fluctuating costs, might use an actual costing system to grant the most current values. (Peoplesoft 2000, p. 12).As organisations have grown into multiple theme corporations or MNCs with multiple activities on different supply chains, maybe this is why standard costing has become less important to accountants because it called for too much detail where they too must remain efficient to keep their positions. A new leaner way needed to match the business practices because as much as standard costing applies to every product or service on the chain it also allots for more manpower and time. There had to be a way to allow for multiple operations and one accounting system that could branch off to meet multiple activities. new(prenominal) ACCOUNTING METHODSCarmona, and et al (2004), writes of the origin of activity b ased costing method of accounting or ABC that came into vogue in Europe during the 1920s. What ABC does specifically as Carmona, and et al (2004) speak of Vollmerss work asDeployed significant efforts to account for statistical distribution and marketing costs, which tend to be snub today. This first event is then taken as record of the origin (both in terms of time and space), from which the new practice mainly banquet both temporally and spatially. (p. 36)This is the start of a movement toward the double initiation system and this saw delay and many weaknesses because it did not present a clear, complete picture of accounting. Its weaknesses were found in inefficiencies with charges and discharges. As a result, early double-entry systems were seen as unreliable and not useful to big business. It would not be until later that sophisticated book keeping procedures would take into account advanced operating processes in production. Carmona, and et al (2004) found these systems alt hough not perfected were used in England and the Colonies as early as 1760 (p. 37). It seems this was the trend as no real streamlined, conforming system would be adopted until modern business practices came into place in the United States.Move to a global theater of operations and model of production purposes and a more refined system is needed because a lot more is at stake. Global business is all about the details. It became common practice more investment applied, the more generally accepted accounting practices became as a diffusion of new technology. Accounting practices became more generally accepted behaviours as businesses became bigger and more dramatic in communities across the world. Practices are utilize as Abu-Raddaha, and et al (2000) surmises the questThe information provided by accounting should facilitate international trade and ceiling flows, not hamper them. It should inform, not just report. More importantly the information demands of both domestic and inte rnational financing and other commercial relationships, have to be satisfied. (p. 19).Everything must remain in balance or presented as a well-oiled mould.How does an organisation get to this point of transformation with its accounting practices? redbrick accounting asks for more participation and optimisation from the start to finish by the corporate accountant. The actions of the corporate accountants must change as the movement toward lean functioning continues to take place. It should not be a painful process but one of creativity, flexibility and growth. There is a concern that lean accounting requires one to turn off creativity and be boxwooded-in(a) into one function or plan process. This will be explored late as a post-modern viewpoint of business where each person has a function within the total quality management or TQM perspective. forward-looking business may use this as a framework but the modern business model has evolved beyond this fixed view. The truth of the ma tter is that modern accounting practices could not be further from this view of being boxed in but rather goes beyond breaking the box and creating a different mindset where thinking is seen other than than before. Accounting is seen differently as not having finite possibilities but infinite reasoning. Traditional methods are flawed as proposed by Van Der Merwe and Thomson (2007), the direct costing speak to doesnt absorb any overhead or even fixed costsresource consumption accounting or RCA makes no lordly assignments at all (p. 29). A lean, effective method allows for a more detailed account of capacity costs and a basic come along to data collection. Modern times call modern values and thought processes with regard to business seamless behaviour across the production floor. The lean method maintains a one-touch flow system (Van Der Merwe Thomson 2007, p. 29) for information diffusion across the life cycle. This one-touch flow system can be integrated with a supply chain easi ly and reflects this value added element as a method for better, honest accounting.OPERATIONS MANAGEMENTA most important factor for facilities management to recognize is the use of Total Quality Management (TQM) or a variation of TQM. TQM according to David Steingard is a set of techniques and procedures used to reduce or eliminate variation from the production process or service delivery system in order to improve efficiency (Steingard 2002, p. 2). TQM fits with the facilities management way of doing things as many of their functions require repetition or constant monitoring of daily, weekly and monthly items. Because this is a modernist concept and the modernist movement believed in certainty and static methods of looking at the world, there is not much room for the uncertainty that change creates in todays workplace using strictly TQM. Therefore either change in this environment must be controlled change or a variation of TQM must be used for the process to work and involve new t echnologies. Otherwise, TQM alone invents a work environment reminiscent of Franz Langs chief city and dehumanizes the employee. A variation TQM can be used in facilities management to aid defining team member responsibilities as it sees the whole team as a machine creates a system of interlocking move each with clearly defined use, centralized authority and high degrees of proletarian discipline culminating with the goal of routinised, efficient and predictable system performance (Steingard 2002, p. 2). Each team member plays a role in the functioning of the machine. Still much like todays business environment where change is constant, this system requires continued adjustment, modification improvement of function. TQM as way of defining a work process cannot operate entirely in todays global market because it succeeds at the expense of innovation and the growth of the employee. It also does not leave room to incorporate change and new ways of improving functions. Still a memory of pure TQM feeds the modernist machine of consumer niftyism which encourages over-consumption, planned obsolescence, ecological damage and depletion of natural resources (Steingard 2002, p. 4). This memory has also burdened management as the obsession for perfection, control, consistency, productivity and efficiency increases over time. In todays facilities team, there must be a healthy medium to not only use past methods for change magnitude productivity and efficiency but also to include modern tools and equipment to make the job easier.In order to remain competitive, technology cannot be ignored, the systems it provides must be implemented in order for logistics to remain seamless and keep up with demand and customer expectation. For instance failure to embrace logistics and technology results in inventory costing a company more money to store than it is worth. McCullogh writes, Right now sitting around the globe is a bunch of inventory (worth an estimated) United States $1 t rillionUnited States $1 trillion of boxes of stuff is just sitting around a warehouse (Warning Dont Snub Logistics, p. 1). This has the potential to represent about 60 percent of the average companys working capital. This is capital in limbo that is not maximizing its investment potential.A sign of successful shop floor operations is reliance on very little warehousing. In other words, warehousing is measured as the amount of days per month a product sits in the warehouse and if logistics is implemented effectively, this number will decrease and stabilize. The retail average storage of inventory is 26 days of investment not being utilized, profit being lost and daily expenses being incurred in an endless holding pattern. In order to reduce the amount of days inventory sits means companies must create tighter relationships with suppliers via the web or perfect a system of communication between resources to cut out warehousing all together. Instead of inventory remaining stored becau se of wireless communication and data collection, the product can go straight from the supply source to the retail merchants shelves via a distribution centre that acts much like mail sorting centre. This can work because technology enables a retailer to send data immediately to the supplier of products that are moving off the shelves with a click of a button. From this electronic message, the supplier knows what the retailer needs, what products are popular, how much and sends then instantly to the retailers distribution centre. In organisations the size of Nestle or Wal-Mart, logistics strategy requires much forethought and planning, as there are many branches and divisions that are involved in the process. The idea is to reduce expenses and increase value to the organisation by making the company more productive and efficient. This needs to be done as seamlessly as achievable to continue brand loyalty and customer relations while maintaining market share and competitive advanta ge. In many ways, implementation of this strategy creates a delicate balance.In order to have better Business to Business or B2B relationships, one must understand the connection. Robert Thierauf and Hoctor (2003) explain, B2B is about connecting shared businesses and information processes of the extended trading networks, planning, transit and logistics, inventory management and customer retention to name a some (Thierauf Hoctor, p. 181). In other words, an optimized planning process can save millions dollars and allow a multination corporation to carry out its objective and gain market share. This means applying advanced technology such as i2 used by Dell Computers and typical ERP vendors. In todays act of doing business, B2B exchanges are based on supply chain management or SCM technologies (Thierauf Hoctor, 2003, p. 182). This will mean considerable investment in such technology but the benefit of market share will prove it to be a valued investment over the long-run (Burn Hachney 2002 Scerbo 1999).Running these centres effectively certainly poses a challenge of management. Manufacturers must develop new skills and confront line of merchandise conflicts with dealers, distributors and independent operators. Leaders in these positions must have an understanding of managing the conflicts in these channels. But well-managed distribution centres would more than justify the risks, as it would save the organisation a significant amount of overhead.With operating expenses as the main cost, it is possible to make the distribution venture essentially self-funding. Facilities can be rented on short-term leases and surrendered if the location isnt successful within a year or two. The cost of goods and labour can be managed as volume grows. Companies should mobilize that a manufacturers original warranty work usually accounts for about half(a) of the labour expenses and for as much as 20 percent of the total value of services rendered, but these costs are typic ally supercharged back to the business unit rather than borne by the companys distribution. In markets poorly served by local dealers or other distributors, for instance, a centre should gear itself to its companys end users or consumers b