Consultant services are important in different sectors including business enterprises and other institutions such as learning institutions. From this paper consultants, have been assigned job to help various clients such as Lavish Lamp manufacturing industry to develop activity-based cost system, Gravina Gravel on how to improve its financial reporting and Moore Manufacturing on how to evaluate their performance against their budget. The service has also been provided to Kingston University on how to solve cost allocation problems.
Activity based costing (ABC) is a method used for accounting and identifies the types of activities that an organization perform and then allocate overhead cost products in a more accurate way compared to a tradition approach. ABC is mostly used in manufacturing industries because it increases the reliability of cost data hence classifying the cost of an organization when carrying out production activity.
Benefits that Premier Light will get after implementing Activity-based costing
The management of premier lighting organization will ensure it implements activity based costing system and phase out its current tradition cost accounting system which do represent their production cost in an accurate way. ABC system is beneficial since it will provide relevant and most accurate information about indirect cost information of this organization which will help the customer’s products and improvement of processing decisions.
The ABC system will suit this company and will help in indicating that the products produced do not have an overhead cost as the way their current old system presents it. ABC will benefit Premier Lighting organization since valuable product and process information will be obtained (Heather Nachtmann and Mohammad Hani, 2004).
ABC would provide strategic benefit to the organization in so many good ways. It will assist in costing and monitoring events that involves tracking consumption of resources and final output costing in this company. The resources will be assigned to activities as well as activity to costs objects depending on the estimation of consumption within premier lighting focusing on the cost drivers and activities that increase or cause the cost to rise.
This accounting system will provide strategic to the organization through an accurate way of service and product costing. This will be important since it will lead to more standards pricing decisions by managers. ABC also will provide benefits to this company by making costly and non-value adding to be seen. This will make managers to reduce them because they will be having a better underrating about overhead and cost drivers.
A plan for Implementation of ABC
The first step will be identification of activity and grouping it in categories. These categories are supporting actions that group in to a product or service line. Secondly, the analysis of activity will be done to obtain the process that support a product and phase out inaccuracy of the tradition system. Assessment of cost based on the finding from activity identification and activity analysis. For instance resource cost will be assigned to management and administration cost. The calculation of activity rates will be done by conveying a currency and includes weightings such as production labor and benefit cost. Once the above are done (activity cost), categories and rates will be identified, cost will be assigned to cost object and finally the management report will be prepared and distributed (Carrison, Ray and Erick Noreene, 1999). The plan outline will work for Premier Lighting because it will allow this organization to make decision about product lines, find a good place to direct sales efforts and to legalize the correct and true values presented by capital tools.
How to solve cost allocation problem in Kingston State University
The college has to ensure decentralized budgeting as it will help the institution in serving its fundamental operations. Since there is budgeting crisis in most education institutions, the way budgeting is done in the college is very important. There is need for the college to focus on revenue and cost allocation to encourage head of departments and deans to use the available resources in a responsible manner. Decentralized budgeting when applied in the college, it will improve growth and save the cost. The college should also focus on working with the college partners.
Many learning institutions are experiencing pressure and most colleges are busy changing budgeting models to reorient institutional decision making. This is not the best way since changing model cannot solve institutional cost allocation problems. Therefore, the college should not focus on the changing the budgeting model instead it should ensure a strong executive leadership and direction in the college. The college should also ensure that there is enough IT and data capabilities. After ensuring that, a budget model should be designed since it can create a long-term decision making structure which will alleviate problems of cost allocation.
The college should ensure that it puts the available resources to best use. It should invest in projects with the highest potential of succeeding so that the returns can be directed to fund the next set of projects. Save money that would be wasted on weaker proposals and projects. In case of conferences in the college, the college should be very careful so as to avoid paying unprofitable conference. For example, the college should cover cost of all first-year new conference but in year two it should only cover 50% of costs and by doing so the college will make some savings.
The college should always create a more picture of total cost. It should make sure that it avoids drawbacks by creating a clear picture of resourcefulness cost. The management and leadership of the college should only select goals which the college can successfully fund over the time given. This is important since it will help the Board of the college to see necessary debts and consider how much they can issue.
How to Improve Financial Reporting in Gravina Gravel Company
Financial management in any business is very important. Traditional financial reporting has posed a major threat to many business enterprises where money is being stolen. Therefore, there is need to be extended to make it more useful to business owners, stakeholders, and customers. Capital allocation decisions depends on the report that is accurate and timely and it dictates the flow of cash to different business opportunities.
One way through which a company can improve its financial reporting is by extending business information model. There is need to include nonfinancial and financial and to provide progressive as well as historical information. Nonfinancial statement will provide users with information about relationships on ongoing events, financial statements and factors that produce long term value and wealth to the company. Management plans should be disclosed together with those factors that may hinder plans successes. Management should also assess the actual business performance to disclose opportunities, risks, and plans. By disclosing this information, the controller who is embezzling funds from the company will take caution because he/she will easily be known.
Enhancing financial statement within the model is another best way that the company should employ to improve financial reporting and reduce embezzlement of funds in the company. General framework of financial statement will satisfy the users though other areas should also be enhanced. Prediction of future earnings and flow of cash has to be made by looking at past data so that in case of money fraud, it can easily be traced and known. The management should ensure that income statements, balance sheet and cash flow statement is given out and, made available for accessible.
The company should also do quarterly reporting. This is very important as it gives users and stakeholders the first sign of important of changes in a company’s business. More segment information should be provided in quarterly report. Quarterly report can easily be analyzed and problem easily identified since it contains little information. This will help reduce theft in the company which is a traditional way of giving report annually.
Improving auditing can also improve financial reporting in a company. In an expanded model, auditors not only report information provided from the accounting record but the will be called to provide assurance on extra and more subjective information (Vicki A. Benge, 2014). New skills and auditing standards will therefore be applied. The auditor’s report has to be personalized to meet range of assurance needs, accountable and thus reduce fraud in a company.
Auditing will make people Evaluating performance against budget in Moore Manufacturing Company
The main aim of a company is to make profit from what has been invested. The performance of the company should be compared with what had been budgeted for so that it can help to know whether the company is doing well or not and whether it has achieved the objectives. Knowing the budget of the company is very important since it will help the management to evaluate different units produced or services rendered as well as materials it took for each task. The first thing for the Moore manufacturing to know is how much input was pumped to the business. Thereafter, budgeted resources will be compared with the actual usage. A flexible budget has to be prepared by adjusting the original budget (static budget) so as to show the actual results. The management should then design a future budget using data from the flexible budget. The standard cost should also be used to establish the flexible budget depending on activity. The standard cost will show the variable production cost that was expected to produce one unit. This information will help to know whether direct materials have the highest variables than labor.
To evaluate the performance of the company and come up with the performance judgment, it is important to know the objectives and goals of the business. Thereafter is to know the resources that were needed to accomplish those objectives including labor and materials. If the objectives were not achieved, information on what was lacking has to be identified. The difference in budgeted figures and results will be used to explain the factors that are beyond management control such as shift in consumer demand. (Bill Gerber, 2016)
Evaluating benefits in a company will be another consideration. Performance evaluation through budget analysis gives company management crucial information that is important in adjusting production to other areas of the business to improve services to customers. Better communication channel within the company with suppliers and customers will be built after assessing company’s performance. It is also important to compare the cost of specific product and services against the actual profit earned for the particular products and services. The management also has to ensure that the objectives are met. If not, there is need to carry out periodic budget review so that it can give business a proper opportunity of changing the procedures or implementing changes which can be incorporated into the next set of budget (Vicki A. Benge, 2014)
Managers should decide on whether to use ideal standards or attainable standards. During evaluation, it is important to know whether production conditions were perfect (ideal standards) for example machines never break down and materials were never wasted. Managers should also apply attainable standards which consider the livelihood of encountering problems such as materials waste and machine downtime. After looking at these considerations, it will be possible to compare the performance and the budget.
In conclusion, as illustrated above consultants play important roles in different sectors. Their services help managers and administrators in making financial decisions about their companies or organizations. They also help people understand what various reports mean and how different data affect the company or firms. Therefore, people should seek advice from consultants’ firms not only when the problem emerge but should do this every time so that they can prevent problems and challenges from occurring.