Management Accounting and Evaluation for Telebox Ltd

Question: Discuss about the Management Accounting and Evaluation for Telebox Ltd. Answer: Calculation for Cost of Raw Material, Labor Cost and Overhead Expenses:- Output (in Units) : 200000 Particulars Cost per Unit Input per unit Total Requirement Total Cost Circuit Boards 50 1 200000 10000000 Delivery Cost 40 1 200000 8000000 Total Cost for Circuit Board 90 1 200000 18000000 Wiring (in rolls) 10 2 400000 4000000 Metal Solder (in Grams) 0.35 50 10000000 3500000 Add: Wastage 0.35 2.63 526315.79 184210.53 Total Cost of Metal Solder 0.35 52.63 10526315.79 3684210.53 Assembly Labor (in Hour) 12 0.5 100000 1200000 Remote Control Units 5 1 200000 1000000 Add: Shipment Cost 1.25 1 200000 250000 Total Cost of Remote Control 6.25 1 200000 1250000 Variable Production Overhead (in Hours) 15 0.5 100000 1500000 Fixed Production Overhead (in Hours) 25 0.5 100000 2500000 Calculation for Estimated Cost per Unit:- TOTAL Particulars Total Unit Cost per unit Amount Amount Budgeted Sales 200000 200 40000000 40000000 Cost of Raw Materials: Circuit Boards 200000 90 18000000 Wiring 200000 20 4000000 Metal Solder 200000 18.42 3684211 25684211 Assembly Labor Cost 200000 6.00 1200000 1200000 Indirect Material: Remote Control 200000 6.25 1250000 1250000 Overhead Expenses: Variable Overhead 200000 7.50 1500000 Fixed Overhead 200000 12.50 2500000 4000000 Selling, General Administration Overhead:- Research 200000 0.15 30000 Design 200000 0.125 25000 Marketing Distribution 200000 0.2 40000 Web-Site Maintenance 200000 0.1 20000 Customer Service 200000 0.05 10000 125000 Total Estimated Cost of Sales 200000 161.30 32259211 Budgeted Profit 200000 38.70 7740789 Budgeted Profit Margin 19.35% Calculation for Cost Gap:- Particulars Cost Price unit Total Unit Total Amount Estimated Cost 161.30 200000 32259211 Selling Price 200 200000 40000000 Less: Target Profit 44.00 200000 8800000 Target Cost 156.00 200000 31200000 Target Cost Gap 5.30 1059210.5 Introduction The main aim of every firm working in the current market is to generate revenue. It is done in order to create a strong grip over the market position and boost up the competitive position in the market. The firms running in the competitive economic market focus on decreasing their production cost in order to raise their revenue keeping the external operations required for the production unaffected. Telebox Ltd, producer of wireless set top box functions its business with the help of various suppliers as they require raw materials and auxiliary tools for the production process. This firm also faces other manufacturing costs relating to research, marketing design labour cost, web-site maintenance etc (Yazdifar and Askarany 2012). The primary focus of Telebox Ltd is to find out the predicted cost for every unit of wireless set top box. It is even seen that a cost gap is generated. Discussion The target cost gap is calculated by estimated cost minus the target cost. The higher management of Telebox Ltd therefore creates benchmarks, which is useful in making the target costs better by improving the operations and the technologies used for production. There are different operational strategies that can be used in order to decrease the cost gap. The company can minimize the various elements that are essential for the production process and for the auxiliary tools that are even inclusive in the production cost. It is essential for the firm to make use of the generally accepted tools and raw materials wherever required to reduce the bridge between their competitors (Johansen and Fossen 2013). The most primary process to raise the productivity and service quality is by showering adequate and relevant training to their staffs so they can obtain essential knowledge about the creative and relevant tools of operations. It is profitable for the organization to make use of different varieties of materials thereby reducing the manufacturing cost. The appointment of cheaper labours into the firm by employing the local community into the business is also useful to bridge the cost gap (Sani and Allahverdizadeh 2012). The entry of innovative and creative technology within the firm will raise the quality and productivity and will also decrease the cost related to manufacture. It is even important for the company to eliminate all the non-value added operations in relation to production thereby reducing the liability of the enterprise. The minimization in the in the cost of labour and raw materials consumed is even an appropriate way thereby reducing the waste coming out of the manufacturing unit. The organization should also take note to raise the productivity so that increase in production will lower the manufacturing cost in bulk. Telebox Ltd brings in raw materials and other necessary items from their suppliers and therefore require delivery and shipping cost (Fayard et al. 2014). The firms asks for special discounts in order to decrease the delivery cost by transporting bulk of raw materials through one consignment, thus decreasing the total number of trips. They even use Kaizen costing method a s this process finds out all the costs at the primary stage of manufacture and thus restricting the firms to invest in any non-value added operations (Jiang and Hansen 2016). From the above calculations, it is seen that Telebox Ltd has a positive cost gap. It has been occurred due to the utilization of low quality material. The company has a chance to improve the quality of the product as well as reduce the cost gap of per unit manufacture of wireless set top box . It is essential that the firm introduces the kaizen cost technique and target costing. The firm brings in circuit boards from the suppliers of Taiwan at 90 each, which includes the delivery charge. The organization asks the suppliers for discounts as they purchase their product in a bulk. The enterprise tries to lower its production cost by minimizing the delivery cost (Yoshikawa and Kouhy 2013). The firm is also in the need of purchasing metal solders, which is useful for making connections between the circuit boards and the wires (Kaplan and Atkinson 2015). Telebox Ltd in order to reduce the production cost thinks of using lower graded solders but the problem involved with such solders is that they produce a lot of waste whereas the higher graded solder does not leave any residue. It is seen that there is a difference of 1 between both the solders. Conclusion It is recommended that the organization should use higher graded solders as it does not leave any residue and therefore, the rate of higher grade solder will be lower than the lower grade solders (Melo, Granja and Ballard 2013). Telebox Ltd presently buys remote control for use with the set top box from a supplier. The cost of the shipment is 1250 that includes the cost of shipping for 1000 units of remote controls. The design team of Telebox, in order to minimize cost is having an idea of using the existing television remote for the set top boxes, thereby reducing the burden of an extra remote from the consumers. The use of the existing remote for the wireless set top boxes will decrease a certain amount of cost for the firm, which will decrease the cost gap. Introduction The primary focus of every enterprise is to retain a product price in the market that is inferior from their rival firms so that the enterprise lives through the competitive environment. The firms therefore look to evaluate their costs in the most suitable way. The cost detection is a vital part of every firm as it is good for the enhancement of the firm. Target costing is an essential model used for the evaluation of the production cost at the stage of design and lower the commodity cost before they are being manufactured. Thus, it can be stated that the primary focus of target costing is to monitor costs before they are introduced in the market (Briciu and Capusneanu 2013). Target costing is introduced at the primary stage of life-cycle of the product before product design and product development. Target costing is helpful in finding out the production model of a new commodity. Telebox being the industry in focus, it is seen that it is in a condition to implement wireless set top box, which is installed in the television set without the use of any wires (Bovea and Prez-Belis 2012). The introduction of the new product( wireless set top box) is in requirement of target costing so that a predicted cost can be attained. In the model of target costing, the operation is under the influence of the consumers and thus focuses on designing and distributing commodities over the life-cycle of the product. Telebox, thus brings in the new product by evaluating the demand of the current consumers (Mouritsen, Hansen and Hansen 2011). Target costing thus concentrates into the revenue and the cost incurred in the management operations to reduce the cost of the products t hrough the entire life of the commodity. Discussion The requirement of target costing took place from the demand of the producers to improve their product development and product cost management. Target costing alike costing models like kaizen costing, activity costing etc are used by industries like Telebox Ltd as they want to enhance their quality and productivity of their product (Nolan 2014). It is observed that target costing is undertaken at the primary stage of life-cycle of the product in which the product design and product development are initiated. Thus it is seen that product design and development is an essential feature while evaluating target costing. The lifeline of an enterprise is product development (Gopalakrishnan et al. 2015). The main aim of product development is to transfer demand of the market into practicality, converting the intangible to tangible and generation of new revenue within the firm. The importance of product development is as follows: Fresh Value to the Consumers The most essential factor for the generation of a new commodity is to satisfy the demand and value of the customers. The firms do not want to invest money in any commodity that does not satisfy the demand of the customers (Marion et al. 2015). The requirement of new and creative value inspires the enterprise firm to keep moving forward. Telebox bring in wireless set top box into the market as it knows that this commodity will enhance the lifestyle of the customers and provide value to them. Improved Society The new commodities manufactured are generally an incremental improvement over their past version having some added advantages and performance. Such products add new capital in the firm and even play a vital role in the development of the society (Homburg, Schwemmle and Kuehnl 2015). The implementation of wireless set top box will decrease any problems related to wires and makes product mobile. Existence and Expansion of the Company The innovative and creative commodity is a bloodline of the firm as if an enterprise does not enhance their product looking after the changing time and demand of the consumers, they product may die or eliminate from the market. The community even is enhanced with the continuous changes in the product as it improves their standard of living (Piller, Vossen and Ihl 2012). The rise in demand will raise the revenue of the firm resulting to the expansion of the organization. Telebox, with its low cost of production and and innovative wireless box will raise its revenue from the economy growing their business and obtaining greater market share. Product design on the other hand is an essential factor that enhances target costing with relation to the cost life cycle of a commodity. The life cycle of a product is very much dependent on the product designing as it inspires new and potential consumers in the market. There exist various problems, which an organization faces while starting product design mechanism at the primary phase of product life cycle (Mooi, Wathne and Kayande 2016). These problems mainly refer to rise in cost, lengthy timescales to introduce the commodity into the market as the firm needs to undertake extensive analysis and research. Product designing even faces the problem of output uncertainty as the firm is always not sure whether the product design will suit the requirements of the customers. It is a complex method to find out the transforming needs of the customers with respect to the change in time and therefore, creation of long term product design becomes difficult (Ullman 2015). Conclusion There are various problems with regard to the product design but there are certain pros associated to it as well. The firm even needs to look into the brighter aspect of and need to implement the same as product design is useful in generating innovative products that can make huge transformation in the market product design is useful in generating competitive gain as their design increases an edge over its rivalries (Ashby and Johnson 2013). Product design is helpful in developing reputation and brings in new opportunities thereby backing the firms to raise their share in the market and increase their profit. Telebox Ltd thus concentrates on the factors that are relevant to product development and product design and through this process tries to analyze the cost through target costing (Radlovic, Lemon and Ford 2013). 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