Activities Cost Planning & Control
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Cost planning and control are vital links in any organization. Activities, Cost Planning and Control presentation covers topics like intermediate ratio in transportation, warehouse facility, inventory ...

Cost planning and control are vital links in any organization. Activities, Cost Planning and Control presentation covers topics like intermediate ratio in transportation, warehouse facility, inventory and external and internal environment factors. Other topics related to Cost Planning and Control are also discussed in this presentation by Welingkar’s Distance Learning Division.

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    Activities Cost Planning & Control Activities Cost Planning & Control Presentation Transcript

    • Welingkar’s Distance Learning Division CHAPTER-3 Activities Cost Planning & Control We Learn – A Continuous Learning Forum
    • Activities costs planning & control • The budget having set the tasks and the expenses norms, the distribution department can now use the same to periodically review and control the expenses, as well as monitor the efficiency and effectiveness of the operation Activities Costs Planning and Control
    • Ratios Key Ratios Intermediate Ratios Grass Roots Ratios Intermediate Ratios Grass Roots Ratios Grass Roots Ratios Activities Costs Planning and Control
    • Transportation Intermediate Ratio • This primarily will be transportation cost as a percentage of sales/gross margin/cost of production the grass roots ratios can be – Transportation cost per unit of movement at different stages of the chain – Transportation task performance, which can be ratios to determine tonnage/km movement in days. Activities Costs Planning and Control
    • Warehouse Facility intermediate ratio • Main ratio will be warehousing cost as a percentage of sales/gross margin/cost of production • Grass root ratio can be – – – – – Warehousing rental rate per cu. ft. Warehouse cu. Ft. utilization against available space Percentage of orders served within 24 hrs Documentation costs such as invoicing Mechanized facilities cost Activities Costs Planning and Control
    • Inventory intermediate ratio • Prime point of focus would be the amount of inventory held in number of days of sales, since holding inventory means blocking that much amount of capital, improper inventory management can also mean stock outs, which can mean loss of profits Activities Costs Planning and Control
    • Inventory intermediate ratio • Typical grass roots ratio – Inventory carrying costs – The stock turnover velocity – Rate of stock shrinkage – Average no. of days of stock out – Value of dames as a percentage of sales Activities Costs Planning and Control
    • Distribution Function Audit • Standards – Reviewing existing performances and procedures and cost accounting techniques, which is zero based – Attempting to gain some competitor's standards/industry benchmarks – Use internal data over a period of time and select own best average performance figures as benchmark Activities Costs Planning and Control
    • Return or Assets -ROA • The logistics function should use return on assets or return on investments as measure of financial performance • It is important that return is calculated on logistical assts • Should not have over emphasis on reduced cost Activities Costs Planning and Control
    • The audit process should address • Where the organization stands at that point of time in terms of physical material flow • How the same matches with information flow • How cost effective the existing logistics system is Activities Costs Planning and Control
    • The external environment factors would be • Source market – The sources from which inputs to the manufacturing process are procured • User market – Where the products are going to be sold, consumed • Competition • Channel – Channel of distribution impacts strategy, costs and efficiency Activities Costs Planning and Control
    • The internal environment factors would be • Product Related – Seasonality – New products , modifications – Special handlings – Special requirements Activities Costs Planning and Control
    • The internal environment factors would be • Distribution Pattern – Organization structure – Product characteristics – Shipment characteristics – Purchasing characteristics – Warehouse utilization – Transport utilization – Stocking requirements Activities Costs Planning and Control
    • The internal environment factors would be • Systems – Purchasing system – Production scheduling – Data warehousing facility – Warehouse facility – Transport facility – Material handling facility Activities Costs Planning and Control
    • Materials and Communication Flow Central Warehouse Factory Information Flow Order Flow Customer C & FA Materials Flow Activities Costs Planning and Control
    • The Audit should now cover 1. 2. 3. 4. 5. Customer service perception audit Competitor audit Channels audit Materials supply audit Finished goods distribution audit Activities Costs Planning and Control
    • When Evaluation is needed • Organization makes significant change in its marketing strategy • Size of the organization changes significantly • Inventory turns very slow • Poor customer service • Inter warehouse shipments stock transfers between various locations Activities Costs Planning and Control
    • When Evaluation is needed • Premium freight charges i.e. extra charges paid to a transporter to ferry cargo fast • Signs of mal-distribution which would be most critical ,can be suspected if Activities Costs Planning and Control
    • Typical audit findings a. Why equal volume base discounts are given to intermediary b. Levels of delivery service c. 15% customers account for 90% of sales. Is this pattern healthy? d. Analysis reveal 12 % deliveries were at drop sizes e. Should distribution for appliances and spares should be different? Activities Costs Planning and Control
    • Recording audit observations & follow up • Any distribution audit task would not be complete unless the findings are discussed with the responsible managers, and their agreements are obtained, noted and recorded in the audit report • Compliance follow up meeting should be agreed upon, and form part of the regular distribution audit procedure Activities Costs Planning and Control
    • Summary • The expenses norms, the distribution department can now use the same to periodically review and control the expenses, as well as monitor the efficiency and effectiveness of the operation • Key ration includes intermediary ratios and grass root ration for transportation costs, warehouse utilization etc. Activities Costs Planning and Control
    • Summary • Effective distribution audit of external and internal factor should aim at rationalizing distribution costs • Compliance follow up meeting should be agreed upon, and form part of the regular distribution audit procedure Activities Costs Planning and Control