The major cost (opportunity, differential and sunk) is an important feature of many decisions made in pricing of market ix (College, 2012). Tip Top should be well aware that any positive contribution (that is when marginal revenues exceed the marginal costs) helps to cover fixed costs. The variable cost is changeable according to volume of good acquired by the organization. After full allocation, cost using Activity Base Costing (BBC) involved in cost of sales per unit then after Tip Top should determine the price in an efficient way.
The cost is a major factor to develop pricing strategy; Tip Top should focus on various strategies to maintain their presence in a competitive market. The following pricing tragedy should develop by Tip Top by considering the various cost involved in unit cost. CLC Tip Top adapted pricing structure and promotion strategy to balance the demand and fixing the affordable price with great value items. O Tip Top should develop marketing strategies to perform market analysis, sales targeting and positioning, which helps to price fixing.
CA Tip Top is a renowned market leader in the retailer market so what it finalizes the price of product probably base on Real Time Pricing system because with the accurate Information on market demand, it is possible to vary the prices infinitely to et current demand exactly. 1. 2 Design a costing system A cost is a major source of running business and is involved in all the activities which organization undertakes. Tip Top Pl. Is growing as a market leader with 125 years of retailer history.
In terms of costing design it will consider different marketing factors and analysis various costing system available in the current market to adopt best one. Some of them are followers: A) Activity based Costing (BBC) BBC is the most recent approach to product costing, pioneer by professors Kaplan and Cooper Of Harvard University. BBC is an attempt to reflect more accurately in product cost those activities, which influence the level of, suppose overheads; it includes such item as inspection, dispatch, product planning, set up tooling and similar costs (Lucky, 2007).
B) Marginal Cost system: It distinguishes between fixed Costs and variable costs are conventionally classified. This normally taken to be; direct labor, direct material, direct expenses and the variable part of overheads (Lucky, 2007). C) Job costing system, costs is assigned to a distinct unit, and a job is a task for which Resources are expended in bringing a distinct product to market. D) Process costing system, the cost object is masses of identical or similar units. The cost of a product is obtained by using broad averages to assign costs to masses of identical or similar units (Hornier, 2005).
Today’s market is more competitive and getting accurate information about the product is essential to fix prices. So costing becomes more an assessment of the cost of buying products. Information sharing, communication, and trust play major roles in improving the performance of virtual enterprises and integrated supply chains (Cooper, 1991). Tip Top runs more than 700 stores across the UK and their activities are eased on the space covered by it. Its performance and cost allocation system illustrates that the BBC costing system is more suitable for Tip Top.
It developed a centrally controlled system to cost controls over targeted business objectives such as saving cost from wastage, maintain supply chain to long term product price fixing. As a manager of Tip Top, I preferred to design an BBC costing system within the organization. Because the rest of costing system will allocate the cost based on labor hour, machine hour and Number of units, which will not exactly represent the cost driver. In this way, the price Of items will increase which is exactly not relevant to another store.
Costing systems are an important tool for cost control and cost optimization, as well as determine pricing of product in -rip Top. It has different types of cost involving into the operations, it needs to have a proper costing system to understand and know about the cost of their product and set the price for selling goods and services in the competitive market. Understanding this cost will give a lot of advantages like fixing product price, fixing margin, fixing the profitable product mix and various management decisions (Hansen D. R. , 2006).
Tip Top will need to introduce new systems and approaches because of following reasons to address: I) Traditional costing systems do not provide sufficient non-financial information ii) Existing product costing systems is inaccurate, it could not allocate the cost in right proportion, which may increase the cost of items, so Tip Top sales were decreased in 2012. Iii) Current costing systems do not encourage improvements and IV) Overhead costs are predominant The Benefit behind adopting new BBC costing system are follows (College, 201 2): C] More accurate product cost information helps managements deter nine which products are more profitable.
C More Detailed information on the costs of activities and their cost drivers helps managers control costs In these reasons, new costing systems needed based on activities undertaken by Tip Top. Such a system should identify critical Success factors (CIFS), develop measures and metrics that assess performance in those key areas, and use those measures to plan and control operations to improve organizational performance and, thus competitiveness. References College, L. , 2012. Managerial Accounting and Cost Concepts. [Online] Available at: http://BMW. Lech. Du/DDCD/doc/ DAM 301 [Accessed 22 1 2 2012]. Cooper, K. , 1991. The Design of Cost Management System. London: Prentice- Hall International. Hansen D. R. , M. M. G. L, 2006. Cost Management: Accounting and Control. South Western: Mason OH. Hornier. T. , 2005. Management and Cost Accounting. London: Pearson Education Limited. Hornier. T. , 2005. Management and Cost Accounting. Retranslated: Pearson Education Limited. Lucky. , 2007. Costing. Theodosius: C offset Printing Co. Ltd… Tip Top, M. a.A, 2012. Financial Management in a detail setting. Online] Available at: http://bufastidiousness’scoCok/Smacks-and-supersonically-management-in-a-retail- setting/ inintroducehtHTMLxaxzz2FnHDvbpjAccessed 20 12 2012]. 2. 1 Forecasting techniques to make cost and revenue decisions in Tip Top Forecasting is the process of predicting the future. Whether it is predicting future demand, sales and production. It is an important yet unavoidable task that is an integral part of almost all business activities. (Kenneth D. Lawrence, 2009) Good forecasts can lead to lower costs, increased customer satisfaction as Woolgathering’s advantage.
Forecasting situations widely vary in time, factors determining actual outspokenness of data and many other aspects (SpSpoorsaMistakes1998). To deal with such diverse applications, several techniques have been developed. These are: a) Quantitative: Sufficient quantitative information is available. L)Elite Series: To predict the continuation of previous data such as the sales growth or gross national product. Expansionary: Understanding how explanatory variables such as prices and advertising affect sales. B)Facilitative: No more quantitative evidence is available but sufficient qualitative information exists. Redirecting future market share establishing by Tip Top ii) Forecasting how large portion of customers will affect by the increase and decrease of pricing strategy. Proffer use quantitative techniques for forecasting sales because of easy to access previous activities, which can be quantified in the form of numerical data and past pattern carry over for future planning. The trend diagram below shows the clear information about the sales pattern Of Tip TOP. Forecasting cost means analysis The previous costing activities and generates the cost related to sales turnover.
Fixed costs are largely independent of the level of sales and variable costs depend on turnover, number, or sales. This circumstance illustrates that sales turnover and costs are interrelated with each other. The forecast techniques help managers to analysis the cost activities to make a decision about cost and revenue (Solution, 2012). 2. 2. Assess the sources of Funds Fundraise money invested in assets, which can produce income, e. g.GseSecuritiesplant And machinery (Musketeer. , 2006). Funds also refer monetary value which is used to operate daily business activities and invest in assets to produce new product.
Funds are raised by organization for short term or long term; it depends upon their financial planning. The Chief Finance Officer of Tip Top Alan Stewart clearly stated that the main sources of funds are following: (Tip Top, 201 2) Sources Funds Cash Inflow (Working Capital) 161 . 9 Credit Facility 1. 3 billion Issue Bonds 300 million Tip Top has allocated 9 million for an Innovation Fund, and further 1 million short-term funds for smaller initiatives such as low carbon food products and hydrogen fuel cell powered forklift truck trials.
The budget process consists of activities that encompass the development, implementation, and evaluation of a plan for the provision of services and appetite’s. Good budget process characterizes the Tip Top’s future planning more clearly and understand by their employees (Launderettes). The manager of Tip Top, should implement quantitative technique for the budgeting process, to analysis the time series of financial activities, which helps a manager to understand past trends and using that information they should able to prepare excellent budget for future targets.
During the budget process manager should consider in following factors. C] Establishes linkages to broader goals Focuses budget decisions on results and outcomes Examples: Estimated revenue growth by 2. 5 billion at the end of 2013 and miff savings, reducing the total cost from momma mommy mid-2013 Involves and promotes effective communication with stakeholders about prepared budget, and Address the government, management and employees by allocating the bonus and tax. 3. 2.
Creation of master budget Every organization prepares the master budget at the end of financial year using previous data and forecast some important headings sales budget, cash budget and fixed budget etc. Wichita cover all the cost related to sales and other fixed and variable cost. The managers of Tip Top must follow the budgetary cycles during prepare the master budget. (Robert D. Lee Ajar, 2008) describes some unavoidable steps. Preparation and Submission: The entire senior manager prepares a draft budget including every head, which covers all the costing for a year.
After collecting the draft budget from all the stores, the department heads and Chief Executives prepare final estimated budget and will be submitted to directors for further approved. Approved: The Board of directors approved the budget after fully comparisons with last year activities and analysis the sources cover all the expeditiousness financial and cash budget is presented in table 1. 3 and 1. 4 illustrate the example of estimated budget. Tightening is the main important financial activities and the major focusing factors are expenditure and revenue, which it will cover.
Comparing the actual expenditure with budget helps increase the ability to predict cost accurately. Department head can easily recognize the fluctuation of fix cost and variable costs adjust in line with sales volumes achieved (usage variance). Analysis the reason for any change in the relationship between costs and turnover (price variance). Have unit costs changed (are the new unit costs likely to continue in the future)? (Solution, 2012) The table 1. 3 shows that the group income of Tip Top increased by 2% because of strong performances in food and international business.
However, operating costs were also up by 1. 5% due to investment in IT, high advertising campaigns and growth in selling space (rent). The efficient control and appropriately planned budget easily monitored and if something going wrong, it could be managed in time. The manager should capable of analysis, which factors behind unable to achieve the target. Therefore, the following reasons must review during the period. L] If the turnover is higher than budgeted, analysis the reasons. C] We’re setting targets too low? C] was the increase in sales a one-off or the start of a trend?
D Have sales been brought forward from future months? Icicles sales in those months now we lower than originally forecast? 3. 4 Evaluate budgetary monitoring processes Budget monitoring is the continuous process, which ensure the target objectives is achieved or not, in terms of expenditure and income. (Andrews, 201 0) The budgets are not always favorable, sometime went adverse too because of discriminations. The manager must know why a variance occurred in order to pinpoint problems and take corrective action. The Error! Reference source not found.
Present the variance between sales, income, expenses and tax. In the table 1. 3 the static budget underestimated both sales and costs. It’s called a static budget variance because the actual activity differed from what was expected in the master budget. But flexible budget variance arises because the company had different revenues and costs than expected for the actual unit sold. This will happen because changes in sales unit price, steadiest and variable cost per unit different than planned on the budget (Charles T. Horseradishes).
Manager of Tip Top should able to find out the reason of budget variance by following some guidelines, which is mentioned below: Calendaring a set of flexible budgets for different sales levels. D Prepare an income statement, performance report as shown in table 1. 3. Review the result to determine which variance is controlled and which is not. 0 Static budget – expected volume of sales estimated before the financial year. Flexible budget- actual volume of sales not known until the end of the year. Should choose the right budget process suitable for Tip Top.
Fixed budget is appropriate for those departments whose workload does not have a direct link to sales and other department’s operations. The work is determined by storefronts;‚s supervisor not by number of sales like an administrative and marketing. It is suitable for some specific projects, which is not necessary to complete within the financial year and the budget should extent for expenses in further period. Example- Capital expenditure budget, advertising and promotion program is types of fixed budget. However, cash budget is more appropriate to control costs and income according budgetary policies and targets.