Key Takeaways:
Benefits and Burden of Group Synergy
Difference between "Deliberate Concerted Action" and "Benefits of Passive Association"
Factors for Evaluating Compensation for Centralised Procurer
Pricing Methods for Procurement Activities
The document discusses the Du Pont analysis method of financial analysis. It was pioneered by the Du Pont company in the United States. The Du Pont analysis breaks down return on equity into three components: profit margin, asset turnover, and financial leverage. It is used to understand how net return on investment is influenced by net profit margin and asset turnover ratio.
The document defines various types of variances that can occur in cost accounting, including material, labor, and overhead variances. It provides formulas to calculate variance amounts and examples showing how to compute variances based on standard and actual costs. Variances are classified into price, usage/efficiency, and mix categories and can be favorable or unfavorable depending on whether actual costs are lower or higher than standards.
This document discusses flexible budgets, standard cost systems, and variance analysis. It contains 6 learning objectives: 1) Prepare flexible budgets and variance analysis, 2) Identify benefits of standard costs and how standards are set, 3) Compute direct materials and labor variances, 4) Compute manufacturing overhead variances, 5) Describe relationships between variances and responsibility, and 6) Record standard cost transactions and prepare an income statement. Examples are provided for a crayon manufacturer to illustrate variance calculations and journal entries in a standard cost system.
Budgetary control is a system that uses budgets to plan and evaluate performance according to budgeted goals. It involves planning, controlling, coordinating, recording, and following up on budgets. Successful budgetary control requires clarifying objectives, delegating authority and responsibility, proper communication, budget education, participation, and flexibility. The objectives of budgeting and budgetary control are to pre-determine capital expenditures, plan and control income and expenses, operate divisions efficiently, smooth seasonal variations, and obtain economical use of capital.
The document provides an introduction to marginal costing. Some key points:
- Marginal costing distinguishes between fixed and variable costs. Variable costs are considered product costs, while fixed costs are treated as period costs.
- Contribution is calculated as sales revenue minus variable costs. Contributions from all products are summed and fixed costs are deducted from the total contribution to determine profit.
- Marginal costing focuses on variable costs and contributions to aid short-term decision making, while absorption costing allocates both fixed and variable costs.
This document discusses various methods, techniques, and systems of costing. It describes job costing, contract costing, batch costing, process costing, operation costing, and others. It also covers techniques like marginal costing, direct costing, and absorption costing. For systems of costing, it explains historical costing using post-costing and continuous costing, as well as standard costing.
The DuPont analysis breaks down return on equity (ROE) into three components: net profit margin, total asset turnover, and financial leverage. This allows companies to identify which specific factors are driving ROE and how they can be improved. The analysis provides a more comprehensive understanding of a company's profitability and valuation than looking at ROE alone. It is useful for comparing competitors and determining whether high ROE is due to sustainable or risky factors.
The document discusses key aspects of budgetary control systems. It defines a budget as a detailed plan for operations over a specific period of time. Budgetary control systems help businesses maximize profits and minimize costs by preparing proper forecasts and controlling costs. The document outlines various types of budgets including production, material, labor, overhead and cash budgets. It also discusses the objectives, advantages and disadvantages of budgetary control systems and classifications of budgets according to time and function. The master budget integrates all functional budgets into a consolidated budget representing the projected profit and loss statement and balance sheet.
The document discusses the Du Pont analysis method of financial analysis. It was pioneered by the Du Pont company in the United States. The Du Pont analysis breaks down return on equity into three components: profit margin, asset turnover, and financial leverage. It is used to understand how net return on investment is influenced by net profit margin and asset turnover ratio.
The document defines various types of variances that can occur in cost accounting, including material, labor, and overhead variances. It provides formulas to calculate variance amounts and examples showing how to compute variances based on standard and actual costs. Variances are classified into price, usage/efficiency, and mix categories and can be favorable or unfavorable depending on whether actual costs are lower or higher than standards.
This document discusses flexible budgets, standard cost systems, and variance analysis. It contains 6 learning objectives: 1) Prepare flexible budgets and variance analysis, 2) Identify benefits of standard costs and how standards are set, 3) Compute direct materials and labor variances, 4) Compute manufacturing overhead variances, 5) Describe relationships between variances and responsibility, and 6) Record standard cost transactions and prepare an income statement. Examples are provided for a crayon manufacturer to illustrate variance calculations and journal entries in a standard cost system.
Budgetary control is a system that uses budgets to plan and evaluate performance according to budgeted goals. It involves planning, controlling, coordinating, recording, and following up on budgets. Successful budgetary control requires clarifying objectives, delegating authority and responsibility, proper communication, budget education, participation, and flexibility. The objectives of budgeting and budgetary control are to pre-determine capital expenditures, plan and control income and expenses, operate divisions efficiently, smooth seasonal variations, and obtain economical use of capital.
The document provides an introduction to marginal costing. Some key points:
- Marginal costing distinguishes between fixed and variable costs. Variable costs are considered product costs, while fixed costs are treated as period costs.
- Contribution is calculated as sales revenue minus variable costs. Contributions from all products are summed and fixed costs are deducted from the total contribution to determine profit.
- Marginal costing focuses on variable costs and contributions to aid short-term decision making, while absorption costing allocates both fixed and variable costs.
This document discusses various methods, techniques, and systems of costing. It describes job costing, contract costing, batch costing, process costing, operation costing, and others. It also covers techniques like marginal costing, direct costing, and absorption costing. For systems of costing, it explains historical costing using post-costing and continuous costing, as well as standard costing.
The DuPont analysis breaks down return on equity (ROE) into three components: net profit margin, total asset turnover, and financial leverage. This allows companies to identify which specific factors are driving ROE and how they can be improved. The analysis provides a more comprehensive understanding of a company's profitability and valuation than looking at ROE alone. It is useful for comparing competitors and determining whether high ROE is due to sustainable or risky factors.
The document discusses key aspects of budgetary control systems. It defines a budget as a detailed plan for operations over a specific period of time. Budgetary control systems help businesses maximize profits and minimize costs by preparing proper forecasts and controlling costs. The document outlines various types of budgets including production, material, labor, overhead and cash budgets. It also discusses the objectives, advantages and disadvantages of budgetary control systems and classifications of budgets according to time and function. The master budget integrates all functional budgets into a consolidated budget representing the projected profit and loss statement and balance sheet.
This document provides information about Life Insurance Corporation of India (LIC), the largest life insurer in India. It discusses the history and nationalization of insurance companies in India. LIC was established in 1956 after the nationalization of 245 insurance companies. The document outlines LIC's objectives, vision, mission and various pension plans offered. It provides details about LIC's organizational structure, branches, and use of technology to improve customer service over the years. LIC continues to be the dominant player in the Indian life insurance market.
The construction industry in India has grown significantly due to infrastructure development needs, growing between 10-15% annually which is faster than GDP growth. It is a major employment sector but remains unorganized and competitive with small and medium businesses dominating. Working capital management is important for construction firms to ensure sufficient cash flow for operations and debt obligations. Inventory, receivables, and payables are key aspects of working capital management that construction firms like JMC Projects focus on through centralized purchasing and receivables collection efforts. The union budget prioritizes infrastructure which provides opportunities for growth.
Standard costing is a technique that involves setting predetermined standards for costs and comparing them to actual costs. Standards are set for materials, labor, overhead and sales prices/margins. Variances between standards and actuals are analyzed to identify reasons for differences and take corrective actions. It helps management evaluate performance, control costs, set budgets and motivate staff. Some key advantages include cost control, delegation, efficiency improvements, and anticipating future costs and profits. Limitations include requiring technical skills and difficulty separating controllable vs. uncontrollable variances.
Presentation on Budget, budgeting and budgetary control..
Contents-
1) Budgeting [characteristics]
2) Budgetary control
3) Difference in budget, budgeting, budgetary control
4) Essentials in budgetary control
5) Requisites for budgetary control system
6) Merits & limitations
7) Zero-based budgeting
8) Difference in Traditional & Zero based budgeting.
Financial modeling is a necessary tool that allows companies to forecast their future financial performance. It is based on making assumptions about key factors like revenues, costs, growth rates, and debt levels. These assumptions are then integrated into financial statements like income statements and cash flows to analyze how changes might impact the company. Financial models are useful for planning, financing needs, analyzing major changes, and new ventures. Experts can create customized models for any industry that clients can interact with to test different scenarios and assumptions.
This document defines and explains break even analysis. It lists the group members and contents. Break even analysis determines the level of output needed for total revenue to equal total costs. It discusses calculating break even points using fixed and variable costs. The purpose is to provide a rough earnings indicator. Limitations include not accounting for demand changes. Calculators are available to assist with break even calculations.
Absorption Costing and Marginal Costing pptVaseemParry
Marginal costing and absorption costing are two different costing methods. Absorption costing treats all manufacturing costs, including both fixed and variable costs, as product costs. Marginal costing only treats variable manufacturing costs as product costs and treats fixed costs as period costs. Absorption costing results in higher inventory valuations as it includes fixed overhead costs in product costs. Marginal costing is useful for decision making as it focuses only on variable costs relevant to production changes. While marginal costing is simpler, absorption costing follows accounting standards by fully allocating costs.
The document describes how to create a break-even analysis graph showing fixed costs, variable costs, total costs and total revenue, and how to identify the break-even point where total revenue equals total costs. It also defines margin of safety as the difference between actual sales and break-even sales, representing the strength of the business in knowing profits or losses relative to the break-even point.
This document discusses working capital management. It defines working capital as the capital required for meeting short-term obligations including raw materials, wages, and current assets. The goal of working capital management is to ensure sufficient liquidity to meet short-term debt and operational expenses. It involves managing inventories, receivables, payables, and cash. There are different methods discussed for estimating a firm's working capital requirements.
The document discusses budgetary control and flexible budgets. It defines budgetary control as the establishment of budgets relating to executive responsibilities and requirements of policy, with the continuous comparison of actual to budgeted results to ensure objectives are met or require revision. Flexible budgets vary based on activity levels, like preparing budgets for production of 7,000 and 9,000 units based on variable and fixed cost schedules. Budgetary control involves planning, coordination, communication, and control to improve overall efficiency.
This document discusses time keeping and time booking. It defines time keeping as recording worker arrival and departure times for attendance and wage calculations. Time keeping ensures regular attendance and compliance. Methods of time keeping include timekeepers, registers, tokens, and clocks. Time booking records actual time spent on jobs/operations and is job-wise. Methods include time sheets and job cards. Key differences are that time keeping is for attendance while time booking is for labor utilization and costing. Time keeping is personnel's responsibility while time booking is production's.
Bancassurance involves banks selling insurance products through their existing distribution networks. It is a popular model worldwide, especially in Europe, with the global market estimated at $1.66 billion in 2018 and growing over 6% annually. There are four main models of bancassurance - distribution agreements, strategic alliances, joint ventures, and financial service groups. While bancassurance provides benefits like one-stop shopping and leveraging bank trust, it also poses challenges like different business models for banks and insurers, legal responsibilities, and adapting to digital banking trends. Critical success factors include senior management commitment, strong distribution strategies, treating insurance as core rather than add-on, and ensuring customers receive full product information.
Budgetary control is the process of comparing actual results to planned budgets in order to calculate variances and ensure maximum profitability. It involves preparing budgets, coordinating departments, and acting on performance results. A budget officer coordinates budgets across departments and informs management of deviations. Budget committees include department heads and are responsible for budget preparation and execution. Key factors that influence other budgets, like sales quantities, are identified. Budgetary control aims to maximize profits through planning, coordination, accountability, and correction of weaknesses.
Mutual funds pool money from investors and invest it in a variety of securities like stocks, bonds, and money market instruments. This allows small investors to hold a diversified portfolio. Key features include professional management, diversification of risk, liquidity, and tax benefits. Mutual funds are regulated entities with sponsors establishing trusts with trustees. Trustees appoint asset management companies to manage the funds' investments.
The document discusses various methods and concepts in cost accounting, including:
1. Different types of costing methods like unit costing, job costing, contract costing, batch costing, operating costing, process costing, and multiple/uniform costing.
2. The need to reconcile cost and financial accounts when they are maintained separately, to check for differences in reported profit/loss.
3. Key aspects of cost sheets like classifying cost components, ascertaining product costs, fixing selling prices, and aiding cost control and management decisions.
Individual health insurance policies provide coverage for a single individual against illnesses and offer benefits like cashless hospitalization. Family health plans allow multiple family members to be covered under one policy for a marginally higher cost than individual plans. Maternity health insurance covers costs associated with pregnancy and childbirth, including pre and post-natal care as well as newborn vaccinations and transportation to the hospital.
The document discusses various methods for paying advertising agencies, including:
1. Commissions based on a percentage of advertising spending, which were traditionally 15% but have decreased with client pressure.
2. Fees negotiated annually based on staff billing rates, though this may not reflect actual work required.
3. Payment by results including incentives if targets are met around sales, brand metrics, or client evaluations of agency performance.
4. Hybrid models combining fees and commissions, or fees with payment by results incentives.
This document provides information about Life Insurance Corporation of India (LIC), the largest life insurer in India. It discusses the history and nationalization of insurance companies in India. LIC was established in 1956 after the nationalization of 245 insurance companies. The document outlines LIC's objectives, vision, mission and various pension plans offered. It provides details about LIC's organizational structure, branches, and use of technology to improve customer service over the years. LIC continues to be the dominant player in the Indian life insurance market.
The construction industry in India has grown significantly due to infrastructure development needs, growing between 10-15% annually which is faster than GDP growth. It is a major employment sector but remains unorganized and competitive with small and medium businesses dominating. Working capital management is important for construction firms to ensure sufficient cash flow for operations and debt obligations. Inventory, receivables, and payables are key aspects of working capital management that construction firms like JMC Projects focus on through centralized purchasing and receivables collection efforts. The union budget prioritizes infrastructure which provides opportunities for growth.
Standard costing is a technique that involves setting predetermined standards for costs and comparing them to actual costs. Standards are set for materials, labor, overhead and sales prices/margins. Variances between standards and actuals are analyzed to identify reasons for differences and take corrective actions. It helps management evaluate performance, control costs, set budgets and motivate staff. Some key advantages include cost control, delegation, efficiency improvements, and anticipating future costs and profits. Limitations include requiring technical skills and difficulty separating controllable vs. uncontrollable variances.
Presentation on Budget, budgeting and budgetary control..
Contents-
1) Budgeting [characteristics]
2) Budgetary control
3) Difference in budget, budgeting, budgetary control
4) Essentials in budgetary control
5) Requisites for budgetary control system
6) Merits & limitations
7) Zero-based budgeting
8) Difference in Traditional & Zero based budgeting.
Financial modeling is a necessary tool that allows companies to forecast their future financial performance. It is based on making assumptions about key factors like revenues, costs, growth rates, and debt levels. These assumptions are then integrated into financial statements like income statements and cash flows to analyze how changes might impact the company. Financial models are useful for planning, financing needs, analyzing major changes, and new ventures. Experts can create customized models for any industry that clients can interact with to test different scenarios and assumptions.
This document defines and explains break even analysis. It lists the group members and contents. Break even analysis determines the level of output needed for total revenue to equal total costs. It discusses calculating break even points using fixed and variable costs. The purpose is to provide a rough earnings indicator. Limitations include not accounting for demand changes. Calculators are available to assist with break even calculations.
Absorption Costing and Marginal Costing pptVaseemParry
Marginal costing and absorption costing are two different costing methods. Absorption costing treats all manufacturing costs, including both fixed and variable costs, as product costs. Marginal costing only treats variable manufacturing costs as product costs and treats fixed costs as period costs. Absorption costing results in higher inventory valuations as it includes fixed overhead costs in product costs. Marginal costing is useful for decision making as it focuses only on variable costs relevant to production changes. While marginal costing is simpler, absorption costing follows accounting standards by fully allocating costs.
The document describes how to create a break-even analysis graph showing fixed costs, variable costs, total costs and total revenue, and how to identify the break-even point where total revenue equals total costs. It also defines margin of safety as the difference between actual sales and break-even sales, representing the strength of the business in knowing profits or losses relative to the break-even point.
This document discusses working capital management. It defines working capital as the capital required for meeting short-term obligations including raw materials, wages, and current assets. The goal of working capital management is to ensure sufficient liquidity to meet short-term debt and operational expenses. It involves managing inventories, receivables, payables, and cash. There are different methods discussed for estimating a firm's working capital requirements.
The document discusses budgetary control and flexible budgets. It defines budgetary control as the establishment of budgets relating to executive responsibilities and requirements of policy, with the continuous comparison of actual to budgeted results to ensure objectives are met or require revision. Flexible budgets vary based on activity levels, like preparing budgets for production of 7,000 and 9,000 units based on variable and fixed cost schedules. Budgetary control involves planning, coordination, communication, and control to improve overall efficiency.
This document discusses time keeping and time booking. It defines time keeping as recording worker arrival and departure times for attendance and wage calculations. Time keeping ensures regular attendance and compliance. Methods of time keeping include timekeepers, registers, tokens, and clocks. Time booking records actual time spent on jobs/operations and is job-wise. Methods include time sheets and job cards. Key differences are that time keeping is for attendance while time booking is for labor utilization and costing. Time keeping is personnel's responsibility while time booking is production's.
Bancassurance involves banks selling insurance products through their existing distribution networks. It is a popular model worldwide, especially in Europe, with the global market estimated at $1.66 billion in 2018 and growing over 6% annually. There are four main models of bancassurance - distribution agreements, strategic alliances, joint ventures, and financial service groups. While bancassurance provides benefits like one-stop shopping and leveraging bank trust, it also poses challenges like different business models for banks and insurers, legal responsibilities, and adapting to digital banking trends. Critical success factors include senior management commitment, strong distribution strategies, treating insurance as core rather than add-on, and ensuring customers receive full product information.
Budgetary control is the process of comparing actual results to planned budgets in order to calculate variances and ensure maximum profitability. It involves preparing budgets, coordinating departments, and acting on performance results. A budget officer coordinates budgets across departments and informs management of deviations. Budget committees include department heads and are responsible for budget preparation and execution. Key factors that influence other budgets, like sales quantities, are identified. Budgetary control aims to maximize profits through planning, coordination, accountability, and correction of weaknesses.
Mutual funds pool money from investors and invest it in a variety of securities like stocks, bonds, and money market instruments. This allows small investors to hold a diversified portfolio. Key features include professional management, diversification of risk, liquidity, and tax benefits. Mutual funds are regulated entities with sponsors establishing trusts with trustees. Trustees appoint asset management companies to manage the funds' investments.
The document discusses various methods and concepts in cost accounting, including:
1. Different types of costing methods like unit costing, job costing, contract costing, batch costing, operating costing, process costing, and multiple/uniform costing.
2. The need to reconcile cost and financial accounts when they are maintained separately, to check for differences in reported profit/loss.
3. Key aspects of cost sheets like classifying cost components, ascertaining product costs, fixing selling prices, and aiding cost control and management decisions.
Individual health insurance policies provide coverage for a single individual against illnesses and offer benefits like cashless hospitalization. Family health plans allow multiple family members to be covered under one policy for a marginally higher cost than individual plans. Maternity health insurance covers costs associated with pregnancy and childbirth, including pre and post-natal care as well as newborn vaccinations and transportation to the hospital.
The document discusses various methods for paying advertising agencies, including:
1. Commissions based on a percentage of advertising spending, which were traditionally 15% but have decreased with client pressure.
2. Fees negotiated annually based on staff billing rates, though this may not reflect actual work required.
3. Payment by results including incentives if targets are met around sales, brand metrics, or client evaluations of agency performance.
4. Hybrid models combining fees and commissions, or fees with payment by results incentives.
An acquisition occurs when one company purchases part or all of another company. There are two main forms: a merger proposal which requires manager and shareholder approval, or a tender offer which allows shareholders to decide whether to sell their shares. Mergers and acquisitions can benefit companies in several ways such as increasing market share, gaining competitive advantages, and expanding into new markets or geographies. Synergies from M&As come from economies of scale, scope, competitive positioning, and corporate positioning which can lower costs. In 2022, M&A activity in India reached an all-time high of $148 billion, driven largely by the HDFC Bank-HDFC merger worth $60.4 billion. The M&A
Shared Services Pricing Models - Drive Desired Behavior with the Right Pricin...Stephen G. Lynch
The pricing model chosen for a company's shared services has a significant impact on how the business units that consume those services behave. An effective pricing model that is buyer-driven will enable competitive pricing, deliver needed services, drive innovation, and properly allocate organizational resources. In contrast, a supplier-driven model where the business units have little input into services and pricing is bureaucratic and will not promote innovation or cost leadership. Careful consideration of pricing options is needed to select a model that creates the right incentives and speaks to the needs of stakeholders.
Most sourcing organizations focus on direct procurement, potentially overlooking indirect procurement and missing key opportunities to reduce spend. As indirect purchases increasingly become a larger percentage of overall spend, for many organizations, indirect procurement can be a diamond in the rough. This article makes the arguement that the value of indirect procurement should not be overlooked.
Mergers and Acquisitions - Project report Girish KhairnarGirish Khairnar
This document discusses mergers and acquisitions (M&A), providing definitions and explaining the differences between mergers and acquisitions. It outlines the objectives, types, structures, processes, accounting, valuation methods, deal structures, impacts, value creation strategies, pitfalls, disadvantages of M&A. Examples of major M&A deals in the corporate and banking sectors in India are also provided, along with the author's personal experience working on an M&A deal between Varian Medical Systems entities.
This document provides an introduction to accounting concepts and techniques. It discusses how accounting helps identify a company's economic position and gain or loss through measuring and communicating financial and non-financial information. The purpose of accounting is to provide useful information to managers, shareholders, and employees. The document then examines several quantitative and qualitative accounting techniques used by organizations, including planning, activity-based costing, just-in-time, and break-even analysis. It defines fixed and variable costs, and how understanding the distinction between them can help managers with decision-making. Finally, it explains that the break-even point is the production level where total revenues equal total costs, and provides the equation for computing the break-even point in units or
The document discusses various factors to consider when using the guideline merged and acquired company method to value a subject company. It notes that transaction prices may represent fair market value, investment value, or a blend depending on the type of buyer and synergies. The value of a company can vary between potential buyers. Key factors to evaluate for each guideline transaction include deal structure, assets/liabilities included, and whether prices need adjusting. Weighting and selecting appropriate valuation multiples requires analyzing comparability and reliability of the guideline data. Non-operating assets and excess/deficient assets also require adjustment.
Agency remuneration has traditionally involved commissions paid by media owners based on advertising costs. However, the rise of specialized media planning led to various remuneration models including commissions, fees, and payment by results. There is no consensus on the best approach as each have benefits and drawbacks from the perspectives of clients and agencies. While value-based models may grow, establishing metrics to accurately measure value remains challenging.
This document discusses value creation and measurement in financial management. It covers several key points:
1) Accounting profits differ from economic profits, with economic profits needing to exceed costs of production including cost of capital to create value.
2) Value is created when investments provide economic profits over their economic life. Capital budgeting evaluates potential investments' net present value of future benefits to determine which create value.
3) Evaluating existing operations can indicate whether to invest more in high return/growth areas, exploit high return areas, fix low return areas with promise, or exit low return/promise areas. This ensures capital is allocated to maximize value creation.
Mergers allow banks to achieve economies of scale, reduce competition, and increase pricing power. The advantages of bank mergers include cost savings, risk diversification, and tax benefits. However, mergers can also result in diseconomies of scale, cultural clashes, and job losses. Regulators examine proposed bank merger schemes to protect depositors and ensure the merged bank is financially sound.
The document discusses problems with the traditional agency pitch process and proposes reforms to make it more outcome-focused. It argues that pitches currently prioritize short-term cost-cutting over long-term growth strategies. It suggests that clients work with agencies as true partners, setting joint goals around revenue growth rather than just cost savings. A reformed process would include in-depth workshops to align both parties and allow agencies to help clients grow their business before focusing on cost reductions.
Question 3 Are the Company’s Prices and Costs CompetitiveOne o.docxsimonlbentley59018
Question 3: Are the Company’s Prices and Costs Competitive?
One of the most telling signs of whether a company’s business position is strong or precarious is whether its prices and costs are competitive with industry rivals.
Price-cost comparisons are especially critical in a commodity-product industry where the value provided to buyers is the same from seller to seller, price competition is typically the ruling force and lower-cost companies have the upper hand.
Two analytical tools are particularly useful in determining whether a company’s prices and costs are competitive and thus conducive to winning in the marketplace:
value chain analysis and benchmarking.
Core Concept
The higher a company’s costs are above those of close rivals, the more competitively vulnerable it becomes.
The Concept of a Company’s Value Chain
The value chain consists of two broad categories of activities:
a.
Primary activities: foremost in creating value for customers
b.
Support activities: facilitate and enhance the performance of primary activities
Figure 4.3, A Representative Company Value Chain, depicts the linked set of value creating activities.
Core Concept
A company’s
value chain identifies the primary activities that create customer value and the related support activities.
Why the Value Chains of Rival Companies Often Differ
A company’s value chain and the manner in which it performs each activity reflect the evolution of its own particular business and internal operations, its strategy, the approaches it is using to execute its strategy, and the underlying economics of the activities themselves.
Because these factors differ from company to company, the value chain of rival companies sometimes differs substantially – a condition that complicates the task of assessing rivals’ relative cost positions.
The Value Chain System for an Entire Industry
Accurately assessing a company’s competitiveness in end-use markets requires that company managers understand the entire value chain system for delivering a product or service to end-users, not just the company’s own value chain.
Core Concept
A company’s cost competitiveness depends not only on the costs of internally performed activities (its own value chain) but also on costs in the value chain of its suppliers and forward channel allies.
Suppliers’ value chains are relevant because suppliers perform activities and incur costs in creating and delivering the purchased inputs used in a company’s own value chain.
Forward channel and customer value chains are relevant because:
3.
a. The costs and margins of a company’s distribution allies are part of the price the end user pays
b. The activities that distribution allies perform affect the end user’s satisfaction
Figure 4.4, A Representative Value Chain for an Entire Industry, explores a value chain for an entire industry.
Activity-Based Costing: A To.
Cisco experienced an 18% drop in quarterly revenues. This drop in revenues will raise Cisco's break-even point. The break-even point is the level of production or sales at which total revenues equal total costs. A drop in revenues means Cisco must cut costs to maintain the same break-even point or the point at which they break even will increase and they will need to make more sales. Cisco plans to lower costs through job cuts and restructuring research and development spending. Lowering fixed or variable costs can help lower a company's break-even point.
Managing Finance (MNGFIN)
Week 5: Strategic management accounting
The nature and role of strategic management accounting
Textbook reading (Atrill & McLaney: Ch. 9)
Last week’s objectives helped you develop an understanding of the role of budgets
in the strategic planning process. Budgets are useful tools for setting financial
standards of performance and act as motivators for effective management. However,
budget preparation, management, monitoring, and analysis represent only a small
portion of the role that management accounting can take within the strategic
planning process. Of course, strategic planning requires an organisation to fully
examine and analyse itself both internally and externally.
Management accounting is a unique field that is excellently positioned to assist with
both the internal evaluation as well as external analysis that organisations must
conduct to remain competitive. It may seem that management accounting is strongly
focused on the measuring of internal performance of the organisation. This was the
common belief for many years; however, in the contemporary business landscape,
companies are finding that they can also practice such analysis on their competitors
as well as their customers. Consequently, this forces them to be more outward
looking, to develop competitive strategies, and to monitor these strategies using the
appropriate range of performance measurements. The role of management
accounting is expanding from supportive to participative as new methods are being
used to help meet corporate strategic objectives.
Competitor and customer profitability analysis
Textbook reading (Atrill & McLaney: Ch. 9)
To better understand the expanding strategic role that management accounting is
acquiring within the organisation, it is important to examine two key areas from this
field: competitor analysis and customer profitability analysis. The methods and
techniques that you have examined and explored to this point have all been focused
on measuring and analysing the performance of the organisation itself. This
information is of great importance, as it provides detail with regards to profitability,
sustainability, etc. However, if the concentration remains solely on the individual
organisation, true analysis has fallen short, as companies do not operate in vacuums.
Managers must do their best to understand the competitive stance of other
organisations with regards to costs, strategies, resources, capabilities, and
objectives. In other words, an organisation must do its best to understand what its
competition might do if it were to reduce prices, launch a new product, or attempt to
enter a new market. While obtaining such precious information proves to be difficult
at times, there are numerous sources that can be utilised, such as public financial
reports, industry reports, government statistics, and simple observations of
behaviours and a ...
This document outlines a sales compensation plan. It discusses different methods for structuring compensation, including ranking, grading, and point systems. It also covers determining compensation levels, common compensation elements like salary, commission, bonuses, and expenses. Finally, it describes different types of plans like straight salary, straight commission, and salary plus commission plans. Fringe benefits and bonuses are also discussed as additional rewards.
1. The document discusses incentive management systems used by auto manufacturers to plan and launch marketing campaigns targeted at dealers. These systems help calculate appropriate dealer incentives to generate demand for select vehicles.
2. Key components of incentive management systems include dealer holdbacks, cash incentives paid to dealers for meeting sales targets, and rules-based systems for configuring marketing programs and calculating incentives.
3. The document provides a framework for auto manufacturers to establish or enhance their incentive management systems, outlining key components like planning tools, configuring marketing campaigns, and ensuring regulatory compliance.
BUS 499, Week 4 Business-Level Strategy, Competitive Rivalry, and.docxcurwenmichaela
BUS 499, Week 4: Business-Level Strategy, Competitive Rivalry, and Competitive Dynamics
Slide #
Topic
Narration
1
Introduction
Welcome to Senior Seminar in Business Administration.
In this lesson, we will discuss Business-Level Strategy, Competitive Rivalry, and Competitive Dynamics.
Next slide.
2
Objectives
Upon completion of this lesson, you will be able to:
Identify various levels and types of strategy in a firm.
Next slide.
3
Supporting Topics
In order to achieve this objective, the following supporting topics will be covered:
Customers: their relationship with business-level strategies;
The purpose of a business-level strategy;
Types of business-level strategies;
A model of competitive rivalry;
Competitor analysis;
Drivers of competitive actions and responses;
Competitive rivalry;
Likelihood of attack;
Likelihood of response; and
Competitive dynamics.
Next slide.
4
Customer Relationships
Strategic competitiveness results only when the firm is able to satisfy a group of customers by using its competitive advantages as the basis for competing in individual product markets. A key reason firms must satisfy customers with their business-level strategy is that returns earned from relationships with customers are the lifeblood of all organizations. The most successful companies try to find new ways to satisfy current customers and/or meet the needs of new customers.
The firm’s relationships with its customers are strengthened when it delivers superior value to them. Strong interactive relationships with customers often provide the foundation for the firm’s efforts to profitably serve customers’ unique needs.
The reach dimension of relationships with customers is concerned with the firm’s access and connection to customers. Richness is concerned with the depth and detail of the two-way flow of information between the firm and the customer. Affiliation is concerned with facilitating useful interactions with customers.
Deciding who the target customer is that the firm intends to serve with its business-level strategy is an important decision. Companies divide customers into groups based on differences in the customers’ needs to make this decision. Dividing customers into groups based on their needs is called market segmentation, which is a process that clusters people with similar needs into individual and identifiable groups.
Next slide.
5
Customer Relationships, continued
After the firm decides who it will serve, it must identify the targeted customer group’s needs that its good or services can satisfy. Successful firms learn how to deliver to customers what they want and when they want it. In a general sense, needs are related to a product’s benefits and features. Having close and frequent interactions with both current and potential customers helps firms identify those individuals’ and groups’ current and future needs.
As explained in previous lessons, core competencies are resources and capabilities that serve as a source of.
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3. Legends used in the Presentation
AE Associated Enterprise
CPC Centralised Procurement Company
CPM Cost Plus Method
CUP Comparable Uncontrolled Price
MNE Multi National Enterprise
TNMM Transactional Net Margin Method
6. Group Synergies
Due to the existence of an MNE group, the AEs comprising such groups may benefit from
interactions or synergies among group members which are not generally available to
independent enterprises. Such synergies are called group synergies.
But Group Synergy does not constitute an intangible because it is not capable of being owned
or controlled by an enterprise
Globalization has made it possible for an
MNE to achieve high levels of integration
and the ability to have control centralized
in one location.
Modern information and communications systems
also provide increased horizontal
communications across geographic and
functional business lines.
Also, management teams of an MNE can be based in different locations, leading the MNE from
several locations.
7. Benefits and Burdens of Group Synergy
Group synergies are often favourable to the group as a whole and therefore may heighten the
aggregate profits earned by group members compared to independent enterprises.
However they also
encompass the
following difficulties
Difficulty in allocating
income/ costs of MNEs
between jurisdictions
for tax purposes
Lack of competitive edge
in performing functions
in-house
Creation of bureaucratic
barriers due to large
size and scope of
operations
Forcing inefficient system
of working as a matter of
group-wide standards
established by MNE group
Examples
economies of
scale
elimination of costly
duplication of effort
streamlined management
integrated systems
purchasing or borrowing power
8. Guidance on Intra-Group Services
An AE should not be considered to receive an intra-group service or be required to make any payment
when it obtains benefits attributable solely to being part of a larger MNE group.
The benefits of association with an MNE group are not a chargeable service for the members of the
MNE group.
The key feature of this kind of incidental benefit is that it is passive and cannot be attributed to a
deliberate concerted action taken by another member of the MNE group
On the other hand, a deliberate concerted action involves one associated enterprise performing
functions, using assets, or assuming risks for the benefit of one or more other associated enterprises,
such that arm’s length compensation is required.
Existence of group synergy, the nature and source of the synergistic benefit or burden, and
whether the synergistic benefit or burden arises through deliberate concerted group actions can
only be determined through a thorough functional and comparability analysis.
9. Deliberate Concerted Action and Benefits of
Passive Association
Central purchasing manager at the parent
company negotiates a group-wide discount with a
supplier on the condition of achieving minimum
group-wide purchasing levels, and group
members then purchase from that supplier and
obtain the discount.
Supplier unilaterally offers one member of a
group a favourable price in the hope of attracting
business from other group members
Scenario 1 Scenario 2
In scenario 1, the favourable price is a synergistic effect that may be a comparability factor relating
to the economic circumstances of the group member. Therefore, it is a deliberate converted action
and the same should be appropriately rewarded.
In scenario 2, no deliberate concerted group action would have occurred, as a group member was
unilaterally approached by a supplier with the hope of encompassing supply-deals with all group
members.
It is important to note the difference between benefits arising from a deliberate concerted action
and from passive association. Lets take 2 illustrations-
Illustration 1
Thus, if the synergistic effect has been deliberately created by the CPC for the group as a whole,
then we can say there is a deliberate concerted action.
10. Illustration 2- Lower Interest Costs
Company B, belonging to an MNE group may
benefit from credit terms from third-party
lenders because third-party lenders may conclude
that Company B is less likely to present credit risk
as the MNE Group is likely to support Company B
and prevent default
The parent company of MNE Group, Company A,
provides a formal guarantee to the third-party
lenders as an inducement to offer enhanced
terms to Company B
Scenario 1 Scenario 2
In scenario 1, Company B receives a passive, incidental benefit that cannot be attributed to a
deliberate concerted action of any member of the MNE Group. Instead the implicit support is a
synergistic effect that may be a comparability factor relating to the economic circumstances of B.
In scenario 2, Company A would be party to a deliberate concerted action in which it performs
functions, uses assets, and assumes risks for the benefit of Company B, such that arm’s length
compensation is required.
In other words, if the benefit accrues to the group as a result of economic circumstances of individual
group members then they are merely benefits of passive association.
12. Introduction
Procurement is seen as a potentially mobile activity that could be located outside key markets and
used to reduce the level of taxable income in the jurisdictions where goods are processed or sold
Most MNE groups operate some form of centralised procurement, but the precise nature of the
activities and their contribution to value can vary widely.
Developing countries sometimes encounter aggressive arrangements involving the insertion by an
MNE group of procurement activities that seem to lack economic substance
Incorrectly evaluating procurement activities can have detrimental tax consequences for both the
jurisdiction in which the activity generates income and also the jurisdiction being charged a fee.
Centralised Procurement Activity typically involves connecting a parent or group company
with vendors. It generally involves, vendor identification, price negotiation, liaising with
vendors, and inventory holding.
13. Monitoring Procurement Activities
In practice, the MNE group may monitor and measure in various ways the performance of
procurement activities for commercial purposes in order to assess its own effectiveness, and
those measures may be instructive in a transfer pricing analysis.
Depending on the commercial objectives of the MNE group, monitoring and
measurement of centralised procurement activities may focus on
• quality,
• speed,
• standardising the range of items,
• finding alternative sources of supply,
• working capital management through vendor credit terms and inventory levels,
• order processing costs,
• production disruption,
• integrating other divisions or newly acquired businesses,
• meeting external and internal standards (for examples, ethical trading, traceability,
safety), and
• specific improvement projects to which the procurement function contributes.
15. Factors to be Evaluated for Compensation
Any evaluation of the compensation for centralised procurement activities in an MNE group
should be based on a thorough understanding of the accurately delineated transaction i.e. the
actual transactions that add value to the group which may differ from the actual contract terms.
Role and expertise of a procurement services provider;
Nature of the items procured and the commercial risks
associated with those items
Risks that a service provider assumes.
Three Important Factors to be Evaluated
16. Role and Expertise of Procurement Service
Provider
Procurement
Functions
SourcingPurchasing
Procurement activities cover a range of functions and the particular functions actually
performed in a particular case need to be specifically identified and their commercial objectives
and contribution assessed.
In performing such an analysis, it can be helpful to consider two categories of functions relating
to procurement: purchasing and sourcing.
Purchasing and sourcing would generally be more valuable to the recipient enterprises than a
purchasing only service, and would be expected to command a higher amount of compensation
than that for purchasing alone.
17. Nature of Items Procured and Commercial
Risks Associated
Accurate Delineation of
Procurement
Core Spend, involves items that are converted or
resold in the course of the business of the recipient
associated enterprises.
Core spend activity demands a higher compensation
than non-core spend.
Non-Core Spend sometimes referred to as indirect
spend, covers goods and services that support the
businesses of the recipient associated enterprises
and are not themselves converted into a finished
item or resold.
Examples: stationery, office equipment, telephone
services, vans, media space
The goods and services are likely to be available from
a range of suppliers, and so the pricing is already
competitive.
The function of the CPC in case of non-core spend is
largely that of a co-ordinator and aggregator, with
the main commercial benefits being the combining
of purchasing power across MNE group and
efficiencies in reducing administrative costs for the
MNE group.
Examples: Lithium for a battery manufacturer,
certain ingredients for a food manufacturer, energy
for a smelter etc.
In accurately delineating the transaction, it is to be
tested whether goods or services may represent a
significant contribution to business performance
and associated with significant risks.
The function of the CPC in case of core spend may
require specialised expertise and may involve
mitigation of critical business risks for the recipient
AEs.
18. Risks Assumed by Service Provider
• It can be asserted that a CPC assumes risk associated with holding inventory.
• Where inventory is determined to be owned by the CPC, evaluation of the
risk is required. Risk may be in the form of
• Changes in the value of inventory owing to market price changes or
obsolescence
• Additional costs because of overstocking
Inventory
Risk
• Other risks include Price risk - by undertaking to guarantee a certain range
of prices or Volume risk by undertaking to supply a certain volume.
• However, such risks may be reduced or eliminated if the terms agreed with
the vendors in practice pass price or volume risk back to the vendors.
• Before determining compensation, attention should be paid to whether CPC
has the expertise to evaluate the risk, make decisions in relation to the risk,
and has the financial capacity to bear the risk.
Other
Risks
20. Pricing Methods
In general, where the centralised procurement activity provides services to multiple associated
enterprises in the MNE group, and the services to each associated enterprise can be separately
analysed and quantified, then a direct charge approach may be reliably applied.
Care should be taken in applying an indirect allocation of the fee to ensure that all the associated
enterprises receive the same kind of service
For example, it may be that the
procurement activity provides a
purchasing service for some associated
enterprises but a purchasing and
sourcing service for others;
It may be that the procurement activity
relates to non-core spend for some
associated enterprises but to core spend
for others
In such instances, there may be different levels of fee required depending on the category of
services.
As in any transfer pricing analysis, the appropriateness of the method depends crucially on the
facts and circumstances of the controlled transaction and the reliability with which the method
can be applied.
or
21. Appropriateness of Pricing Methods
A CPM or TNMM is likely to be an appropriate method where the procurement activities are
mainly purchasing rather than sourcing.
The CPM or TNMM can be applied in most cases, even in cases where the centralised
procurement company provides expert services and employs know-how and proprietary tools.
CUP method is appropriate where the procurement activities involve significant sourcing
activities, relating to core goods and services, including business-critical decisions, and involve
some risk assumption or performance of risk control functions.
Where commission rates in third-party arrangements are available, a CUP Method can reliably
be applied.
22. Illustration- Appropriateness of Pricing
Methods
Company A
(employs 50 people)
Company B
(employs only 20 people)
MNE Group
• 40% of spend is core spend.
• The company performs
administrative functions only for
core spend.
• Vendors are already identified by
the group and the company
assumes no risk.
• Performs sourcing functions for core
items and works closely with production
companies to forecast demand and
provides them guidance to improve
quality and yield.
• Also reports regularly to parent about
the new trends and investment avenues.
• In the above illustration, Company A performs a useful function for the group, but it would not seem to be a
highly valuable one that contributes significantly to business performance.
• Company B, though a smaller operator in terms of head count, concentrates on business-critical aspects that
can directly affect group profitability.
Functions Functions
23. Illustration (Contd)
Even though A spends 40% in core spend, the
vendors for procurement are already identified by
the group company.
In such a scenario, application of CUP would result
in a higher compensation which cannot be
justified by the limited activities performed by A.
Hence, CPM seems to be the most appropriate
method based on the facts presented.
Reliable method for Company A Reliable method for Company B
CPM cannot be adopted as it may not give
effect to the full value created by the
functions performed by B
Moreover accurately comparable companies
which perform the exact same functions of B
are difficult to identify.
Considering the above facts, a CUP Method
can be reliably applied. Commission rates in
third-party arrangements may be available,
and the same can be taken as reliable
benchmark.
24. Conclusion
The key to determine compensation for centralised procurement activities lies in the nature of
items procured, risks assumed and the role and expertise of CPC
One has to accurately delineate the transaction in order to identify the actual contribution of
various parties to the transaction.
The decision on appropriate pricing method would ultimately depend upon the actual role
played by the CPC in the entire gamut of transactions.
Most importantly, the benefits arising from synergy has to be carefully scrutinised to determine
whether they arise on account of deliberate concerted action or merely from passive association.