Cost management is the process of production and operation of various cost accounting, cost analysis, the cost of decision-making and cost control, and a series of scientific management behavior general. This assessment is show the identify of cost management, combine with the Berkshire Threaded Fasteners Company situation, which idea is the most profitable , what should the manager do to change the different situation. Cost management generally includes the cost forecast, cost decision, cost planning, cost accounting, cost control, cost analysis, cost assessment functions.
Cost management is an important part of enterprise management, and it requires a systematic and comprehensive scientific and reasonable, to increase production and savings, strengthen economic accounting, to improve enterprise management, improve the overall level of cost management is of great significance. In this paper will show how to take full use of cost management to help the company overcome the challenge. Background Berkshire Threaded Fasteners Company made only three lines of metal fasteners ( nuts and bolts) , the 100 series, the 200 series, and the 300 series.
These were sold by the company sales force for use by heavy industrial manufacturers. All of the sales force on a salary basis. Sola all three lines but in varying proportions. In February 2000, Brandon Cooks was appointed general manager by Joe Mager, president of Berkshire Threaded Fasteners Companies. During a good business year the manager received the income statement for 1999, that the loss of over $70,000. In order to change this situation, they have different ideas. In July 2000, Bosworth announced a price reduction on the 100 series from$2. 5 to $2. 25per 100 pieces. This created an immediate pricing problem for its competitors. 1. If the company had dropped the 300 series as of January 1, 2000, what effect would that action have had on the profit for the first six months of 2000?
The price will reduce from $2. 75 to $2. 52, so the profit loss is $0. 40. At the same time 100 series price will reduce from$2. 45to $2. 22, profit loss is $0. 07. So the first six months profit all loss. 2. If the company have reduced the price of the 100 series from$2. 45 to $2. 5,but the unit sales will increase from 750,000 to 1000,000. If the price reduce , we can calculate $2. 25X1000,000-$2. 45X750,000=$412,500. Even though it has profit, but the total cost is $2. 29 is higher than $2. 25. it means 3 Which is Berkshire’s most profitable product line? | 100series unit sales $000| 200series unit sales$000| 300series unit sales $000| Standard$ 000| 2000| 996859| 712102| 501276| (76)| 1999| 2119672| 1029654| 986974| (73)| Reduce | (1122,813)| (317,552)| (485,698)| (3)| Decrease rate| 53%| 31%| 49%| 4. %| | | | | | We can saw the chart, compare with 1999, in 2000 in the same series it decrease 1122,813,317,552,485,698. So Cook’s idea is not work. If the price reduce from $2. 45 to $2. 25, the total cost is $2. 29, the price is lower than the cost. Standard unit sales is loss $76000. In fact Joe Magers had only four years experience with the company and in early 2000 he was 34years old, so he lack of experience, so he attracted Cook from a competitor by offering a stock option incentive in addition to salary.
The arrangement was that Cook as general manager would have full authority to execute and changes he desired. And there is another problem Berkshire sold throughout New England and was one of eight companies with similar products. The competitors were larger and manufactured a larger variety of products. The dominant company was Bosworth Machine Company, which operated a plant in Berkshire’s market area. The company announced prices annually and the other producers followed suit. But Compared with him, he has a cost advantage, this is our company can not be compared.
During 1999,Berkshire’s share of industry sales was 12% for the 100 series, 8%for the 200 series and 10% for the 300 series. The industry wide quoted selling price were $2. 45, $2. 58, $2. 75 per 100 pieces. Business Strategy: A careful analysis is needed in order to determine Berkshire’s business strategy. At first one would think it was product differentiation because of the inelastic demand in the short run. But one thing that should also be noted is the fact that for most goods, demand is much more price elastic in the long run than in the short run.
This combined with the fact that Berkshire is convinced that it could not individually raise prices without suffering substantial volume declines, and that all the products of the different manufacturers in the industry are very similar, prove that their business strategy is in fact cost leadership. What advice for Mr. Magers Important of cost management * . Cost management include product design to production, sales and after-sales service throughout the process around the all-consuming and manufacturing costs, a series of management fees. Cost management is a day-to-day operation and management of the work of the Centre plays an important role in the production and operation in practice. Cost level not only determines the level of efficiency in the production and operation, and is also directly related to the competitiveness of enterprises, resistance to internal and external pressures to seek survival and development capabilities. Traditional cost management is based on whether a company based on conservation, one-sided to reduce costs and even seeks to avoid the occurrence of certain costs to start. Emphasized savings and savings.
As a manager we should know now company lack of enterprise cost management market philosophy, Effective internal contrast between inputs and outputs, many enterprises divided in accordance with the cost behavior and accounting product costs, fixed costs can be reduced by improving the production unit of product sharing, the higher the yield, the unit cost of the product is lower. Sales in the same case, the higher the profits of an enterprise, this practice is how to lead the enterprise regardless of market demand for the product, unilaterally increase production to reduce product cost.
Transfer or hide the cost of the production process and inventory, increase short-term profits. How to improve cost management in the era of knowledge economy Cost management of the modern enterprise managers use specialized methods to analyze data itself and its competitors, the formation and evaluation of corporate strategy to help managers, thereby creating a competitive advantage, in order to achieve the enterprise to effectively adapt to the constantly changing external purposes. The modern enterprise cost management should be based on the following aspects:
Firstly Based on long-term strategic objectives The purpose of the modern enterprise cost management is to enable enterprises to long-term production and development, based on the long-term strategic objectives in order to achieve long-term sustainable competitive advantage. Labor costs such as corporate management, should reduce labor costs to hire employees with high technical proficiency. Secondly Based on the overall development strategy Strong competitive edge in the market, both for the enterprise products, the cost of management can not be limited to the production (manufacturing) rocess, but should be extended forward view to the market demand analysis, trend analysis of the development of related technologies, as well as product design, extends back to the use, maintenance and disposal of the customer, in accordance with the requirements of the cost of the whole process of management, social relates to the source of information costs, technology costs, production costs, inventory costs, cost of sales, as well as the maintenance of the customer costs, disposal costs and other cost areas Thirdly based on the overall development strategy
Strong competitive edge in the market, both for the enterprise products, the cost of management can not be limited to the production (manufacturing) process, but should be extended forward view to the market demand analysis, trend analysis of the development of related technologies, as well as product design, extends back to the use, maintenance and disposal of the customer, in accordance with the requirements of the cost of the whole process of management, social relates to the source of information costs, technology costs, production costs, inventory costs, cost of sales, as well as the maintenance of the customer costs, disposal costs and other cost areas Fourth based on internal value. Internal value chain analysis to identify internal value-added jobs, and the cost and value does not match the job improvements and reduce costs.
Competitors, value chain analysis, cost competitors, to determine the strengths and weaknesses of the cost of the enterprise, enabling businesses to deliver value for customers at the lowest cost. Through the industry value chain analysis to determine which part of the industry value chain cost greater integration strategy, seeking ways to reduce costs. The activity-based costing (ABC) is consumed by the decomposition of the diversity of resources and reasonably traced to products, services and customers of the method, which can be fundamentally eliminate the drawbacks of the allocation criteria unscientific. The cost of providing job costing information managers quantitative analysis of the reasons of costs incurred and rationalize; Improve the accounting of intangible assets, the ntroduction of environmental accounting (Green Accounting), assessment and control of environmental costs, environmental accounting can be roughly divided into three parts: 1. Natural resource consumption costs; 2. The cost of environmental pollution, social environmental costs of assessment.
Conclusion In February 2000, Brandon Cooks was appointed general manager by Joe Mager, president of Berkshire Threaded Fasteners Companies . Cook and Magers discussed the pricing problem, a sales price of $2. 25 would be below cost. Magers wanted $2. 45 to be continued since he felt the company could not be profitable while selling a key product line below cost. From our analysis, still continue the price $2. 45is the most profitable way for the company.
And as a manager MR,Magers should know how to improve the cost management, now company lack of enterprise cost management market philosophy, Effective internal contrast between inputs and outputs. Cost management of the modern enterprise managers use specialized methods to analyze data itself and its competitors, the formation and evaluation of corporate strategy to help managers, thereby creating a competitive advantage, in order to achieve the enterprise to effectively adapt to the constantly changing external purposes. To determine the strengths and weaknesses of the cost of the enterprise, enabling businesses to deliver value for customers at the lowest cost. Through the industry value chain analysis to determine which part of the industry value chain cost greater integration strategy, seeking ways to reduce costs. Reference list Cao Zhanglin (Anhui Institute of Architecture and Industry , Hefei 230022 , China);
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