Allocation Of Resources And Determination Of Costs For Manufacturing Business

The importance of the production area in manufacturing concerns

Assessment 1

a)Budgeting Procedures

The production area of any manufacturing concerns is the most important area of the business as it is associated with the core activities of the business. The production area of the business is to be considered for the assessment. The business can use budgeting techniques in order to identify the potential costs and also the potential revenue of the business. The budgeting techniques are used by business to forecast the standard costs which the business will incur in manufacturing activities. On the basis this budget, actual costs are maintained so that no variance arise (Hope and Fraser 2013). The production and sales budget are prepared by the production department of ABC Company which is shown below:

Statement Showing Production Budget
	Particular Save Time On Research and Writing Hire a Pro to Write You a 100% Plagiarism-Free Paper. Get My Paper		Standard	Actual	Variances
	Total revenue (A)		$ 5,00,000.00	$ 6,00,000.00	-100000
	Salary and wages		$      80,000.00	$     90,000.00	10000
	Factory Expenses		$      20,000.00	$     25,000.00	5000
	Direct expense		$      10,000.00	$       8,000.00	-2000
	Insurance		$      20,000.00	$     27,000.00	7000
	Supervisor’s Salary		$      30,000.00	$     30,000.00	0
	General expenses		$      10,000.00	$     15,000.00	5000
	Cost of raw materials		$      50,000.00	$     60,000.00	10000
	Maintenance and repairs		$      30,000.00	$     45,000.00	15000
	Miscellaneous expenses		$      60,000.00	$     50,000.00	-10000
	Total Cost (B)		$   3,10,000.00	$ 3,50,000.00	40000
	Profit (A-B)		$   1,90,000.00	$ 2,50,000.00	60000

The above table shows the production budget of ABC Company and the different cost which the company incurs in the production process. The total cost as per the standard is $ 310000 and the actual expenses which is incurred by the company is $ 350000. The total revenue of the ABC Company as per actual and standard figures are $ 600000 and $ 500000 respectively. Financial data of the company can be used to estimate the standard and they act as a benchmark for comparison with the actual results.  The profit of the company can be determined with the help of actual budget (Grossi, Reichard and Ruggiero 2016). The financial data can also be used to compute variances between actual results and standard set.

b) Reviewing the Profit and Loss Statement

The above stated profit which is obtained by deducting the total expenses from total revenue earned by the business. As per reviewing the policy and income statement of the ABC Company, it can be stated that there are various reasons for the profit or loss as earned by the business. Firstly, the company has followed the policy of sales maximization which requires the company to increase the sales of the business (Mascle and Gosse 2014). With the increase in sales the overall revenue of the company also increases which has resulted in higher profits as shown in the table above. Secondly, it is a common known fact as the sales volume increases so does the variable costs which are associated with it. The company has tried to control the variable costs though the company is unable to meet the standard requirements. However, the company has been able to decrease the costs marginally in comparison to sales volume increase. This has also resulted in increase in profits of the company. Thirdly proper supervision by the management in the operations of the company will reduce wastage of resources and also improve the allocation and utilization of resources to productive activities.

Different budgeting techniques for identifying potential costs and revenue

c) Taxes Applicable

In the case of ABC Company which is a manufacturing concern, the two most prominent taxes which will be applicable are income tax and Goods and Service tax. The income tax is charged on the net income of the company subject to various deductions and exemptions as per the provisions set by Australian Tax Office (ATO). The income tax will be charge on the taxable income which is computed after allowing all deductions and exemptions. On the other hand, Goods and Service tax are charged on the goods manufactured by the company (Palil et al. 2013). Goods and Service Tax (GST) rate which is applicable in Australia is 10% and the current income tax rate is 30% on individual and companies in Australia (Ato.gov.au. 2018). If the company plans to engage in export of goods or import of raw materials than the company will further be subjected to duties which are related to imported and export. The income tax as well as Goods and Service tax are universally applicable in Australia and the rate are fixed in consideration to geographical variations. However, the tax on certain goods and services are subjected to lower rates and exemptions as well as per the provisions.

Assessment 2

a) Allocation of Resources

The main purpose of this assessment is to analyze the financial statement of a company and identify the process in which the company allocates resources to different items. For the purpose of this assessment, Downer ltd is selected. Downer ltd is engaged in providing services various services which are rail, construction, transport and utilities, industrial plants and mining activities and some other activities as well (Downer Corporate Site 2018). It is thus clear from the various services provided by the company has a diversified line of services which requires appropriate allocation of resources of each activity. The allocations of funds and resources should be in such a way that the most revenue generating line of services is allocated maximum amount of resources and funds so that the company earn increased amount of revenues. Downer ltd can use Activity based costing technique to ensure that proper allocations of funds to various product line. As in the case of Downer ltd the construction, power generation and transport business line is thriving. The company needs to allocate a major portion of the funds to these sectors as this will definitely increase the overall profitability of the company. Downer ltd has earned around 27.5% of the total revenue from transport business line, 25.6% out of the total revenue from construction activities as engaged by the company in the year 2017 as per the annual reports of the company (Downer Corporate Site 2018). These line of services, show further scope of development and therefore the company needs to allocate more funds to such product line in order to increase the overall profitability of the company.

Reviewing the profit and loss statement and applicable taxes

Statement showing segregation of revenue ($ in millions)
Particulars	Transport	Mining	Rail	Utilities	EC&M	Total
Revenues Earned	$ 2,091.10	$ 1,250.80	$  467.10	$        1,974.20	$ 1,517.30	$ 7,300.50

The revenue earned by Downer ltd and its segregation is shown in the table above. It can clearly be seen that the company earns maximum amount of revenues from transport which is $ 2091.91 million and from utilities which include power generations which is $ 1974.20 million. The company should focus on such sectors using ABC analysis which identifies activities on the basis of revenue generating capabilities of product or service line and classify them in category A, B, C basis respectively (Hilton and Platt 2013).

b) Determination of Cost of New Product

The company can add a new product line to further diversify the current portfolio which the company is following. The company can diversify into manufacturing business line and manufacture iron and steel which will also be providing assistance to company’s other service line. The company will be needing to establish a factory and also incurs certain installation expenses of machinery and equipment. The estimated cost which the company will be incurring in new product development and the various estimated costs which the company is likely to incur are given in a table below:

Statement showing Cost estimating of manufacturing business ($ in million)
Particulars		Amount $	Amount $
Raw material cost			$           1,200.00
Salaries and wages			$                   0.35
factory expense			$                   0.75
Mining and explorations			$                 60.36
Installation and maintenance			$                   0.15
Repairs and renewals			$                   0.25
Depreciation			$                   1.20
Start-up expenses			$                   0.45
Advertisement			$                   1.04
Distribution expenses			$               100.00
supervisor’s salary			$                   0.50
Rent			$                   1.50
General expenses			$                   0.35
Miscellaneous expenses			$                   0.10
Total cost			$           1,367.00

As per the current fund and resource availability the company can allocate the unallocated portion of funds as shown in the financial report of Downer ltd to the new product line. It can also reduce the resources and funds which is currently being used in activities which is not so much profitable. The company can also take loans from banks and financial institutions to finance the new product. The above table shows that there are certain costs which are of regular nature and fixed such as rent, general expenses and certain costs are such that they are related to the new product development like mining and exploration cost, installation, cost of raw material.

c) Preparation of Budget 

The budget needs to be prepared by the company considering the policies and requirement and goals of the company. A budget reflects the costs and revenue which the business expects to earn during a year (Klychova, Faskhutdinova and Sadrieva 2014). There are various kinds of budget which are production budget, cost budget, master budget and others as well. While preparing a budget the following factors are to be taken into consideration which are given below:

1. The policies and goals of the company which also includes objectives of the company. Suppose if the company’s policy is cost reduction then the budget will be prepared with controlled costs.
2. The company also has to check past year’s cost and revenue figures on the basis of which an educated estimated can be made.
3. The budget as prepared by the company is also affected by the changes in market and policies and moreover the standard should be accurately set which could measure the performance of the company (Chapman, Kern and Laguecir 2014).

Assessment 3

a) Measures for Misappropriation of Funds

Methods of Misappropriation	Measure
Employee in many cases engages themselves in unethical activities such as misappropriation of funds of the company (Dellaportas 2013). Employee can steal the money which has been allocated by the management for productive purposes.	The only way to stop misappropriation of money is by establishing an effective and efficient internal control. The management needs to review every record, ledger, cash books to ensure that no discrepancies exist in the records. Proper Supervision and effective control can prevent such misappropriation from taking place.
Employees can also misappropriate resources of the business such as raw materials or finished goods as well for personal gain (Resnik et al. 2015).	In such a situation the management should keep proper records of the inventory of the company and also introduce routine checks and verify whether such a inventory has been misappropriated or not.

b) Contingency Plan  

Analyzing the financial statement of Downer Ltd

Contingency plans are implemented when a certain future event occurs and a situation arises. A company while preparing a budget always incorporates a contingency plan which will be helpful to deal with the circumstances if the uncertain future event occurs (Ruiz-Torres, Mahmoodi and Zeng 2013). Suppose a company is facing a legal case whereby if the company loses the case then it has to bear a certain compensation which will be an additional cost in the circumstances that the company loses the case. On the occurrence of the unpredictable case results, the company needs to prepare a contingency plan prior to the case results and implement the same when case is lost. The company can keep aside a part of the funds as provisions and show the same in the budget. In case the case results are in favor of the company, the provision can be written off (Calareso 2013).

c) Budget Application

The budget as prepared by the management has be distributed among the different departments such as sales, production, distribution, marketing. The brief details of the budget can be explained in a departmental meeting where the management can provide a presentation of what are the key aspects of the budget and what areas need to be focuses and what are the responsibilities of each departments. The meeting will also provide a scope of instant feedbacks, queries, suggestions from various departmental heads and thus the budget will be understood by every departments. Moreover, the responsibilities of each departments will be further explained to workers by their respective departmental heads.

d) Compliance in Workplace 

The compliance of legal regulations and rules in a workplace is very important for overall control and management of the company (Molina-Jimenez,  Shrivastava and Strano 2012). The area of compliance which the management must ensure are as follows:

1. The management should ensure that the company complies with the rules of the government such as the provisions of the Corporation act and the rules which are in force in the country (Sadiq and Governatori 2015). The management needs to ensure that all the activities of the management are legal and in accordance with the corporate rules in place in the country.
2. The management can ensure that the company complies with the different rules and law which are associated with the workplace such as anti-harassment rule, fairness and anti-discrimination rules. These rules can be implemented effectively and a policy of compliant can be incorporated to reveal any individual who violates such rules.
3. The management can ensure that the company does not indulge in any activities which are forbidden by the law such as monopolistic practices, defrauding creditors.

e) Audit Trail

Audit trail is a systematic review of all the entries recorded in the books of accounts so that if any discrepancies has occurred can be revealed (Readshaw, International Business Machines Corp 2013). In case of sales transaction, the management can check all sales records such as receipts, vouchers, ledgers, journal entries, discount offers. Then the management can check the statement of profit and loss account and compare the figures with that of the vouchers and receipt and then check the budget as well to identify any discrepancies.

The main purpose of this assessment is to analyze the financial data for ABC Company which is engaged in manufacturing activities. The company allocates different resources to the manufacturing activities and tries to maintain the costs which arises during the manufacturing process. The assessment will also be reviewing the reasons for the profit and loss which is earned by the company. In addition to this, the assessment will be identifying the different taxes which are applicable to the business of ABC Company

Reference:

Ato.gov.au. (2018). Home page. [online] Available at: https://www.ato.gov.au/ [Accessed 5 Mar. 2018].

Calareso, J.P., 2013. Succession planning: The key to ensuring leadership. Planning for Higher Education, 41(3), p.27.

Chapman, C., Kern, A. and Laguecir, A., 2014. Costing practices in healthcare. Accounting Horizons, 28(2), pp.353-364.

Dellaportas, S., 2013. Conversations with inmate accountants: Motivation, opportunity and the fraud triangle. Accounting fórum, 37(1), pp.29-39.

Downer Corporate Site. (2018). Downer Group. [online] Available at: https://www.downergroup.com/ [Accessed 5 Mar. 2018].

Grossi, G., Reichard, C. and Ruggiero, P., 2016. Appropriateness and use of performance information in the budgeting process: Some experiences from German and Italian municipalities. Public Performance & Management Review, 39(3), pp.581-606.

Hilton, R.W. and Platt, D.E., 2013. Managerial accounting: creating value in a dynamic business environment. McGraw-Hill Education.

Hope, J. and Fraser, R., 2013. the Budget. Budgetierung im Umbruch?, 1, p.71.

Klychova, G.S., Faskhutdinova, ?.S. and Sadrieva, E.R., 2014. Budget efficiency for cost control purposes in management accounting system. Mediterranean journal of social sciences, 5(24), p.79.

Mascle, C. and Gosse, J., 2014. Inventory management maximization based on sales forecast: case study. Production Planning & Control, 25(12), pp.1039-1057.

Molina-Jimenez, C., Shrivastava, S. and Strano, M., 2012. A model for checking contractual compliance of business interactions. IEEE Transactions on Services Computing, 5(2), pp.276-289.

Palil, M.R., Ramli, R., Mustapha, A.F. and Hassan, N.S.A., 2013. Elements of compliance costs: Lesson from Malaysian companies towards Goods and Services Tax (GST). Asian Social Science, 9(11), p.135.

Readshaw, N.I., International Business Machines Corp, 2013. Selecting a web service from a service registry based on audit and compliance qualities. U.S. Patent 8,572,691.

Resnik, D.B., Neal, T., Raymond, A. and Kissling, G.E., 2015. Research misconduct definitions adopted by US research institutions. Accountability in research, 22(1), pp.14-21.

Ruiz-Torres, A.J., Mahmoodi, F. and Zeng, A.Z., 2013. Supplier selection model with contingency planning for supplier failures. Computers & Industrial Engineering, 66(2), pp.374-382.

Sadiq, S. and Governatori, G., 2015. Managing regulatory compliance in business processes. In Handbook on Business Process Management 2 (pp. 265-288). Springer, Berlin, Heidelberg.