Answer To: HOLMES INSTITUTE FACULTY OF HIGHER EDUCATION HI5017 MANAGERIAL ACCOUNTING INDIVIDUAL ASSIGNMENT T3...
Kushal answered on Jan 20 2021
Contents
Features of the standard costing 1
Relevance of the Standard Costing 2
Real Life Company following the Standard Costing – Pfizer 2
Target costing features and difference against standard Costing 3
Target Costing relevance in current environment 4
Real life company following the target Costing – Toyota 5
Recommendations 5
Conclusions 6
Journal Articles – 7
References 7
Features of the standard costing
1. Cost identification –
a. In the standard costing we need to first of all identify all the costs which are likely to occur based on the historical trends and past experiences.
b. In the standard costing, we are not making any changes to the present working conditions and based on that only we will try and identify what should be the costs of the production of goods or developing he services will be.
2. Cost comparison –
a. Based on the actual costs that will occur after the production of goods and services, we need to understand if the costs which we had projected for the forecasting and budgeting are in line with the costs we are actually occurring .
b. This costs play a major part in the health of the company, does have a material impact on the income statement, balance sheet and the shareholders wealth creation.
3. Variance Identification –
a. Once we know the actual and budgeted costs, we can try and understand the variances across multiple processes to identify how they stack up against each other and how much higher or lower costs were actually incurred during the production of the goods and services.
b. Once it is known, we might want to identify the processes or the activities where the variance is significantly higher which can materially impact the statements.
4. Verification –
a. Once all the variances are identified, before reporting these results to the management we need to ensure that all these expenses are verified by the auditors and internal control teams to ensure that the reports ready to move forward.
5. Presentation to the Top management team-
a. Once all the reports are presented, along with the root causes for each of the variance, are prepared for the executives so accordingly all the decisions are taken care of.
b. Another aspect of this, it provides the firm an opportunity to capitalise on the different aspects where the cost savings happened and also provides the opportunity where the actual costs were higher than he prescribed in the budgeted costs.
6. Feedback-
a. Once this is prepared, management gives their inputs to manage these expense, stop the bleeding, capitalise on the areas and corrective suggestions are provided.
Relevance of the Standard Costing
Standard costing is still relevant in many manufacturing firms where the revenue projects are fairly stable and consistent and they do not have to deal with the competitive actions which might end up disrupting markets. For example, in the mature industries, where the market share of the firms are more or less stable and they do not have to rely upon the pricing actions taken by the other firms.
Hence, based on the relevance of the industry the firm takes the call whether they will be able to maximize the profitability on the sound projections of the sales revenue, the cost forecasts, the variance analysis, the success rate of the feedback mechanism where the management is able to provide the guidance on the cost leakages which can be optimized to ensure the highest profitability levels. Standard costing is still widely used in the Asia, western parts of the world. It will continue to do so in the future years until they become fit to use the
Real Life Company following the Standard Costing – Pfizer
Pfizer Inc. (Pfizer) is a pharmaceutical company engages into producing the biologics and biosimilar. The company develops its own products, engages into research and development and produces healthcare devices too. They majorly focus on the drugs, vaccines. Two segments of Pfizer are functional: Pfizer Innovative Health (IH) and Pfizer Essential Health (EH). IH focuses on developing and commercializing medicines and vaccines. IH therapeutic areas include internal medicine, vaccines, oncology, inflammation and immunology, rare diseases and consumer healthcare. EH includes legacy brands, branded generics, generic sterile injectable products, and biosimilar and infusion systems. EH also includes a research and development (R&D) organization, as well as its contract manufacturing business. Key brands of Pfizer are – 1. Prevnar 13, 2.Xeljanz, 3.Eliquis, 4.Lipitor, 5.Celebrex, 6.Pristiq and 7.Viagra.
Pfizer in the preparation of the annual and quarterly budgets focuses on the historical expenses for each of the activities, including the direct and indirect expenses, different overhead expenses, sales and general administrative expenses, technology expenses and taxes, all these costs are budgeted and after the period ends, against all these activities the budgets are created.
Methodology followed by Pfizer-
Pfizer engages into multiple products developments, research, and development, production processes, which are supported by the...