Strategic Cost Management and Performance †MyAssignmenthelp.com

Question: Discuss about the Strategic Cost Management and Performance. Answer: Introduction In the Barossa Valley the development association has been formed named the Barossa Valley Development Association Inc. (BVDA). The main purpose of this association is to provide knowledge of the locality that would enhance the development. The Barrosa valley which is known for its wine and scenic beauty attracts many tourist and is planning to conduct a case study to explore the management and the accounting issue. For the research, the Barrossa valley has appointed a family named Karmichael. The main purpose of the research is to point out the various issues in the accounting like underutilization of the resources and accounting processes (Cooper 2017 p 27, para 12). The Karmichael is one of the family businesses that work under the BVDA. It has three businesses located outside of Tanunda. Since the middle of 1800s, the property was converted to vineyards and in the mid-1960s into a boutique winery. The three businesses are run by different family members and each of them deals wit h different products and services. The crooked creek vines that was established by Paul and Mary Karmichael is now taken over by their son and his wife, Grace and Alby deals with the red wines and have recently planted new varieties which are about to give the first harvest. The second one is Vine Dining that is run by Sophie that deals with food products and dining, that produces and promotes a farm-to-table concept with varying menu depending on season and harvest. Samuel who is the brother of Sophie has opened a bakery named Rolling in Dough that includes a including a range of gluten free baked products. The main purpose of the discussion is to identify the various cost associated with the Karmichael holding and the accounting management issues of the same. The Barossa Valley Development Association Inc. needs to identify the process and policies of the Karmichael holding so point out the issues in the accounting (Henri Boiral and Roy 2016). It has been suspected that the management accounting is underutilized and the main reason behind the same is due to the misunderstanding of the business owners. In the Karmichael holding, although, there are three kinds of business that deals with three different kinds of commodities the management processes and policies are same ( pp 3, para 6). Cost classifications and use of information in decision-making: The cost classification is the process in which the Karmichael holding classifies its various costs into different categories. The categories of costing include fixed cost, variable costs, production cost and opportunity costs. The costs are classified according to their function, traceability, timing of charge against revenue, behavior and relevance to the decision making. In the given organization pilot study it has been found that the cost are classified into manufacturing cost and the other is the non-manufacturing costs. As per their name, the manufacturing costs refer to the goods that are converted from the raw materials and are manufactured for sale (Sechilariu Wang and Locment 2014 p 9, para 16). In Karmichael holding the crooked creek, Vine Dining, Rolling in Dough have different kinds of products manufactured and require different kinds of raw materials. Similarly, non-manufacturing costs differ in the three d ifferent sections. It includes the selling expenses and the administrative expenses. The Karmichael being a tourist spot does not require any advertisement and costs of promotion (Lanen 2016, p 56 para 102). When it comes to decision making of the Karmichael there are three types of decisions. One is the strategic decisions; the second is the operational decision and the third is the managerial decisions (Homburget al. 2016 p 35, para 98). The strategic is the are non-repetitive in nature and are not related to the operations of the business. The operational decision deals with the regular functioning of the business. Then comes the managerial decisions that are needed for development, research and innovation. However, there are issues that are pointed out in the decision-making process in the Karmichael holding. At times, it is difficult for them to come into a conclusion, as there is an existence of multiple owners and all are co-related. This can be a major issue while taking a decision. Moreover, there are multiple kinds of business in the Karmichael which may lead to conflicts and confusion as the family members are only the owners and the managers as well (Ingram et al.2015 p 123, para 345). Cost estimation: The cost estimation refers to the total cost of the project program and operation. In the given case the estimated cost of the Karmichael holding the tendering or Cost Estimation is a part of project management subjects other than planning, monitoring, risk analysis, and budgeting. The Karmichael holding, dedicate a departmental organization to carry out coat estimation. It takes place for all three of the business undertakings within the holding and estimates the cost all together. The cost estimate of Karmichael holding has three main parts: Direct cost analysis: The direct cost is the cost of regular working of the Karmichael holding, it includes the labor cost, cost of purchase of plants and machineries, various materials and many more. The Karmichael holding deals with three business the crooked creek that deals with the vinery estimates the cost of the machines that help in the extraction of wines and various raw materials for production and its innovation. Vine Dining estimates the cost various cost related to food products and dining. The Rolling in Dough also estimates the various associated costs within including cost of the raw materials and other direct expenses (Boardman et al. 2017 p 86 para: 54 ). Indirect cost analysis: The indirect cost is the somewhat same for all the three businesses that includes the staff salaries, accommodation, office expenses. All three businesses estimate the indirect cost similarly as the three of them are located in the same location. Mark up: the mark is the investment decisions that are taken by the owners of the company who are the businesses top management (Konijeti et al. 2014. para-10). The Karmichael holding estimates the costs by using the excel sheet, moreover, there are many software programs that are used which makes the process much easier. The business uses the Candy CCS for accurate and fair estimation. Cost-volume-profit analysis: Karmichael holding uses the CVP analysis technique for determining the costs and volume changes that affect the company's operating net income. In performing the CVP analysis, there are several assumptions, as per their procedure they take sales price per unit, variable costs per unit, total fixed costs to be constant. They also assume that everything that is produced is sold and the costs are only affected because of changes in business activities. The company uses the net income equation of cost volume profit analysis. The problem encountered by Karmichael holding when cost-volume-profit analysis stands as a basis for decision-making is managerial inefficiency and this includes ignorance of this concept that is inability of the management to employ it in their decision making and also not knowing the importance of cost volume- profit analysis. Karmichael holding are not relevant in their decision-making process (Palanski, Avey and Jiraporn 2014 p257, pa ra 5). Job and process costing: Job costing is the method of recording themanufacturingjob, rather than process. Withthe help of this, the accountantcan keep track of the cost of each job, maintain data which is often more relevant to the operations of thebusiness. Job costing is the accounting methodology that the used to track the expense of manufacturing costs. Due to the fact that certain operations that takes place in the Karmichael require different operations, the manager use this methodology to trace the expenses of each job in order to use this information for tax and accounting analysis. The forms of Job Costing have includes the various direct costs like labor,materials, andoverhead (Said 2016 p 14 para 6). The various Cost in the Karmichael incurred stays in the work-in-process account throughout the job and when the job completed, they are transferred to the finished goods account. The job costing enables the accountants to can make sense of complicated jobs, which are moving towards the process of completion. The Karmichael uses the technique of job costing, as it is the most efficient process. They also use job-costing software that increases the efficiency and effectiveness. The Bookkeepers can run the system quite smoothly in this process. Although while surveying on the accounting issues in the Karmichael holding, it can be said the process of Job costing is comparatively more expensive as more clerical work is involved in identifying each element of cost with specific departments and jobs this increases the chances of errors (Garvey, Book and Covert 2016, p 225, para 295). Activity-based costing: The activity-based costing is a costing methodology that is used by the Karmichael holding where they assign each of the cost of activity with resources to all products and services. It has three sectors out of which the Vine Dining follows this type of costing as it activity based assigns the cost of each activity with resources to all products and services. it is beneficial for them as Vine Dining deals with various products like food, theme-based dining and hospitality. This model allocates the overhead costs into direct costcompared to conventional costing. It is the most trending and effective process of cost management. It Identifies and eliminates those products and services that are unprofitable and enables modification. It focuses on allocation of costs in operational management and segregates, the costs into fixed cost, variable cost and overhead costs. The fixed cost deals with the unavoidable costs that is not dependent on the production and sales (Eldenburg et al. 2016, p 556, para 897). The variable cost changes with the amount of production and varies. The overhead costs are the indirect costs that are related to the production and operations. This split of cost helps to identifythe cost drivers if achieved. In the process, the direct labor and materials is easy to trace directly to products, but it is more difficult to directly allocate indirect costs to products (Cascio 2018 p 129, para 45). However in order to identify the issues in the cost management process it can be said, applicability of ABC is bound to cost of required data capture that drives the prevalence to slow processes in administrations and services, where staff time consumed per task defines a dominant portion of cost. Hence the reported application for production tasks do not appear as favorable. Conclusion The process Cost management refers to the planning and controlling the policies of a business according to their operations. It is a form of management that enables a business to predict the expenditures and help in reducing the chance of going over the anticipated budget.Implementing a cost management structure for projects can help a business keep their over-all budget under control. In the given scenario, the Karmichael holds three kinds of business one deals with vine products, one deals with fine dining and the other deals with bakery. It can be said after analyzing the different kind of cost processes in the three different sectors namely crooked creek, Vine Dining, Rolling in Dough have different functions and therefore, the process of accounting is different for different sector. For crooked creek and rolling in dough, the job costing can be effectively used and in case of Vine Dining, the Activity Based costing is the most suitable one. 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