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Costing and Profitability

Costing and Profitability
Costing and Profitability Analysis Relationship between Cost of Production and Sales Volume: The cost of production and volume of sales are the inter-dependent determinants of profit. The analysis of cost behavior in relation to the changing volume of sales and its impact on profit is very important to determine the break even level of a firm. The level at which total revenue equals total costs, is said to be the break even level where there is no-profit or no-loss. Sales beyond break-even volume bring in profits. Generally production is preceded by the process of demand forecasting, to decide on the volume of production, the produce of which will be absorbed by the market. Pricing and promotions come at a later stage. Costing is done to predict the costs of production and resultant profits at various levels of activity. Download this comprehensive power-point presentation on Break-Even Analysis. Cost Volume Profit or CVP Analysis: CVP analysis or Cost-Volume-Profit analysis helps a firm to study the interrelationship between these three factors and their effect on clean profit. The process also includes an analysis about the external factors that affect the volume of production, such as market demand, competitor threat and internal factors such as availability of infrastructure, capital and labor force. This CVP analysis is a boon to the managers to locate the bottlenecks that hinder the productivity and find a way out, by adjusting either the levels of activity or controlling the cost.   Picture Courtesy : The Power of Break-Even Analysis Pricing: Pricing is the most important factor that makes your product competitive. The costs of production can be classified into fixed costs, variable costs and semi variable costs. Fixed costs remain constant and tend to be unaffected by the changes in volume of output; whereas variable costs vary directly with the volume of output and semi-variable as the name implies are partly fixed and partly variable. Cost accountants of the modern era fully support variable costing for the purpose of cost accounting, listing its merits as follows: Variable costing talks about contribution margin, which is the excess of sales over variable costs. If this is going to be high, sufficient enough to cover the fixed costs, then profit is assured for the firm. It is a key factor to determine the percentage of profit. Variable costing assigns only those costs to a product that varies directly with the changing levels of production, which is helpful in making a distinction of profit made from sales and those resulting from changes in production and inventory. Segregating the costs into fixed and variable is done for the purpose of providing information to reflect cost-volume-profit relationships and to facilitate management decision-making and control. Some applications of variable costing that facilitates management decision making: Profit planning: By increasing the volume of sales or decreasing the selling price of the product. Performance evaluation of profit centres:Like, sales division, marketing department, product line etc., Decide on product priorities: In view of market potential and profit potential Make or Buy Decisions: Depending on the production capacity and sales demand. Budgeting: Flexible budgeting and cost control are possible by variable costing technique and the striking feature is the treatment given to fixed costs, where it is treated as a period cost and not apportioned among all the departments and products that enable the firm to understand the movement of profits in the same direction as that of the sales. Although considered to be a controversial technique and weighed against the conventional methods of costing such as absorption costing, it is believed that it is to stay and exist as the next step in the evolutionary method of cost accounting....
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Smart Objectives for Success

Smart Objectives for Success
Smart Objectives for Success An objective describes something which has to be accomplished and defines what organizations, functions, departments, teams and individuals are expected to achieve. Objectives may be operational or developmental. When the contribution is oriented towards the accomplishment of corporate objectives, in the light of the organization’s mission, core values and strategic plans, it is termed as operational; personal or learning objectives that involve the improvement of knowledge, skills and performance of individuals is termed as developmental.     Objectives must be SMART: S-scientific M-motivating A-achievable R-realistic T-time bound   Objectives that are mostly confined to the near future may be termed-short term objectives, which are accomplished in the stipulated time duration. Say, for example, 1000 units of pet bottles have to be produced in a week’s time. If the firm is focused on the overall production plan for the forthcoming year, then it is termed as long term objective. In a production environment, a firm has to initially go for an aggregate plan, where the production capacity of the plant is determined to make the project feasible. The firm has to make doubly sure, whether it is resourceful in terms of physical, financial and human aspects. The work centers are allotted with jobs in a mock trial to check man versus machine co-ordination and compatibility.     Pic Courtesy: Digital Information World Proper Planning: Objectives are achieved only when there is proper planning. The top management must take the pains to clearly explain the objectives to all the employees across different levels of organization to facilitate smooth functioning. When the employees understand what is expected of them, the performance gets oriented towards accomplishing the objectives; the employees get proper direction and focus. Delivering Happiness: A Path to Profits, Passion, and Purpose Think of this, what will happen to the sales volume, if the marketing manager does not properly educate his team about the targets to be achieved for that quarter? Definitely there will be a dip in the sales owing to the lethargic and irresponsible attitude of the manager. Ultimately, the organization stands to suffer a loss in terms of time and cost of recruiting a new person to head the marketing department. Right Person for the Right Job: Organizations have to be meticulous while choosing people for the post of managers. The chosen persons must be able to identify themselves with the organization and its objectives, so that they could be a source of inspiration for people down the line. Right people for the right job, at the right place and right time is the success mantra. Objectives have to be periodically revised in the light of changing economic, political and technological developments. How to Stop Worrying and Start Living If not the objectives might become obsolete and in due course you will get stranded amidst the roaring competition.  The process of business management aims at managing people and other resources to make a modest profit. How to achieve success in an open market? By clearly setting objectives that serve as tools of motivation and persuasion, a firm can evolve and contribute strategic inputs that make the objectives realistic and...
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SWOT Analysis

SWOT Analysis
Swot Analysis to Strengthen Your Organization What is Swot Analysis and how to do a Swot Analysis Perfectly? Strategy formulation is an integral part of management decision making as strategies come to our risk whilst there are fluctuations in the external environment. A management expert will tell you rightly that strategies are not templates constructed for a specific purpose as they are formulated based on broad policies of a particular organization and have to be in tandem with the enterprise objectives. Nevertheless a CEO will find himself in situations where he might be forced to make instantaneous strategic decisions irrespective of the nature of the problem, only considering the magnitude of the situation. SWOT AND SYNERGY EQUATIONS Significance of SWOT Analysis: The analysis subjectively evaluates the impact of internal and external factors for a business objective. Internal processes and resources are considered strengths and weaknesses (S and W, respectively). External factors affecting the business and industry are considered opportunities and threats (O and T, respectively). An evaluation of these factors develops a strategic perspective that includes the competitive landscape and current market conditions. Need for Alternate Strategic Decisions: Lately we are witnessing a number of multinational giants going in for Joint Ventures and Collaboration. What is the root cause for such alternate strategic decisions? What happened to the value of the “Brand Image” of the organization or the “Profit Margins” which kept the company going? Well, this is where we have to look into the structure of their operations and most importantly the modality formulated to reach their ultimate objectives. Definitely, there would have been a big dent somewhere in the top management notch, failing to see through the obvious.  Market Research is Inevitable for Decision Making: Situations change and we even experience this in our day to day lives, where decision making becomes very difficult at times; further we push the situation to extreme limits and make it worse. Planning is the very basis of our life that facilitates smooth functioning and change for the better. In big corporates, decision making is by and large the responsibility of the top management and they pass on the instructions down the line. It is but natural that the chairman and board of directors should make all the important decisions as they are the potential capital investors. Market research is another area that deserves mention at this juncture without which business persons cannot think of kicking off trade as it will be a sheer waste of money and time. Understanding the pulse of the market and your target customers always help in shaping up the right strategies concerning New product launch Consumer Preference Price determination Product modification etc., Test marketing is one of the strategies followed by many multi national companies while they launch their new products or wish to introduce variations in their product range. THE IMPORTANCE OF DECISION-MAKING Strategies are based on organizational policies and policies have to confer to the objectives and goals of the organization. The top management team should be a set of professional experts who should be able to gauge the existing as well as future trends of the market based on political, legal, environmental and economic changes and sketch their action plans accordingly.Decentralising decision making and delegating the authority as and when needed are also fine strategies to gain co-operation from your employees and to bring co-ordination in the entire business set-up....
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Mission Statement

Mission Statement
MISSION STATEMENT Why mission statements are important? Before going into that, let me first briefly tell you what a mission statement is. Firms in corporate business arena perform different business activities to earn profit as well as to retain their market share and stand. How does the general public know what they are up to? Is it really necessary for the firms to expose the nature of their activities to outsiders! Well, by explicitly defining the mission of your company, you stand a chance to gain identity, character and image and there is nothing to lose. A mission statement defines the basic reason for the existence of the organization and it clearly reflects your corporate philosophy. The management’s actions also might reflect their mission, in which case the mission statement is not explicitly defined and sometimes it could be deduced from the press statements released by the CEO. Whether defined or not defined, each and every organization has a definite mission that is clearly communicated to all the employees for action. When defined, it also serves as a means to highlight the firm’s social responsibility.  Following are the distinct characteristics that a mission statement should possess: It should be precise: The mission should neither be narrow as to restrict the activities of an organization nor too broad to make the situation pointless. It should be crystal clear: It should be clear enough to lead to action and not high-sounding and adhere to cheap publicity. It should be feasible: The actions mentioned must be well within the reach of the company and should not be impossible. It should be realistic and achievable. As, credibility is involved, firms must exercise caution when they release their mission statements. Feasibility mainly depends on the resources available that facilitate the firm to work towards the mission. It should be motivating: Motivating both for the employees and the society. Employees must identify themselves with the organization and feel proud that it is worth working for the firm and customers should take pride in associating themselves with that firm. It should be distinctive: It should project your distinctive competence to sustain competitive advantage. Say, if you own a garment shop, you should talk about the range of clothes that you can offer for different sections of the society and you can name yours a “Family Shoppe”, so that people will understand the nature of your business. It should indicate major components of strategy: If the aim of your company is stability, growth, diversification or concentration, all those can be included in your mission statement. It should also indicate how objectives are to be accomplished: The time period, production target, product specialization, product or process differentiation, everything can find their place in mission statements for the benefit of the society and self. Strategic management involves intelligent and timely decision making and mission statements are nothing but components of strategic planning that help the managers to lead the firm with some distinct “ideology” in the form of mission statements. Some Interesting Mission Statements: Google’s mission is to organize the world’s information and make it universally accessible and useful.  Nike-“Crush Reebok.” Wal-Mart-“To give ordinary folk the chance to buy the same thing as rich people.” Walt Disney-“To make people happy.” Infographic on 24 Most Inspirational Company Mission...
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Critical Factors of HR

Critical Factors of HR
Managing Critical Factors of HR The prerequisite for an organization to excel in all aspects of its business activities is absolute strategic management of its HR functions.Human resource management is an extensive term that covers various aspects of personnel function. This discussion is focused on three main aspects that constitute human resource management. Personnel administration Human resource development Industrial relations Personnel administration: It can be also called as the HR module where policies and programmes are laid down by the HR department for the benefit of the human resource personnel. Employment and compensation are chiefly dealt with in personnel administration. While business firms in the corporate environment are in constant demand of man power, finding the right person for the right job is always a testing task for them. Right from job analysis to HR planning, recruitment, selection, placement, induction and orientation, HR department is held accountable to define and develop these operative functions. Mere acquisition and incorporation of human resource is not adequate, the organizations have to engage themselves in empowering their employees through competent training, motivation and refining their social relations. Job Assessment: Job assessment has to be done for fixing compensation that includes wages and salary administration, incentives, bonus, fringe benefits and social security measures. The shifting business environment and consumer requirements compel the organizations to restructure and re-engineer their organizational functions. These moves can be viewed as strategic responses reflecting from all domains of an organization, namely product, marketing, manufacturing etc., where people are the centre of focus. Human resource development: This is easier said than done. Firms are trying to evolve and employ various methodologies of training to enhance the performance levels to the desired standards. Performance cannot be achieved by coercion or bureaucracy, as the work force is protected by numerous enactment of labor laws enforced by various governments. Training and development is a separate entity by itself and is a continuous process that aims at the development of the organization as a whole and also facilitates employee career planning and development. Industrial relations: The following factors have to be scrutinized by the management to maintain good personal relations with the employees. Motivation Morale Job satisfaction Communication Grievance handling Discipline procedure Quality of work life Employee participation All said and done, the organizational health can be measured by checking the effectiveness of HR management through aspects like HR audit and research that aid the firms to analyze and understand the extent to which they are efficient in utilizing human resource for the benefit of their organization. The experience of a human resource manager comes in handy at situations like these, where he has to don different roles to suit the occasion. Personnel role-advisor for top management, policy maker, counselor to employees, spokesman of the company, change analyst, liaison Welfare role-researcher, catering man, motivator Clerical role-time keeping, wages and salary administration, record maintenance, human engineering Fire fighting legal role-negotiator, trouble shooter, peace maker, problem solver, grievance handling. The management employs scientific, analytical, psychological and social techniques to build the business around human resource, who are the real value additions to the...
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