Topic 8
Topic 8
Very few organisations have a good understanding of the cost of their products and services. Critically evaluate this statement.
Topic 8.
Very few organizations have a good understanding of the cost of their products and services. Critically evaluate this statement. My overall experience in the accounting and banking industry would indicate that the above statement is very true. More often than not business owners and operators are quiet knowledgeable and skilled in their particular area of interest or industry yet they lack the financial acumen which would enable them to understand the cost drivers of their business. This often impedes on the business’s ability to generate profits because the cost of providing services and products is not understood accurately. Understanding and minimizing the costs has become a major focal point of the agriculture sector with the ‘cost-price’ squeeze being ever so evident. More often than not farmers are price takers, which results in input costs having to be heavily monitored in order for the business to remain profitable. A good example would be the operation of a feedlot where livestock are purchased, fattened and then sold for human consumption. Feedlots generally have a small profit margin per head or kg of meat produced, which is often compensated by scale. Market movements in relation to the purchase price of livestock and fodder heavily impact feedlots. Any adverse market movements can have a significant impact on the margins achieved. A profit can quickly turn into a loss if input costs are not monitored and managed appropriately.
Jess
Very few organisations have a good understanding of the cost of their products and services. Critically evaluate this statement.
For organizations to understand the cost of their products and services (and hence set prices for customers), they must have a relatively good understanding of the direct material costs (e.g. raw materials), the direct labour costs (e.g. salaries for
Very few organisations have a good understanding of the cost of their products and services. Critically evaluate this statement.
Topic 8.
Very few organizations have a good understanding of the cost of their products and services. Critically evaluate this statement. My overall experience in the accounting and banking industry would indicate that the above statement is very true. More often than not business owners and operators are quiet knowledgeable and skilled in their particular area of interest or industry yet they lack the financial acumen which would enable them to understand the cost drivers of their business. This often impedes on the business’s ability to generate profits because the cost of providing services and products is not understood accurately. Understanding and minimizing the costs has become a major focal point of the agriculture sector with the ‘cost-price’ squeeze being ever so evident. More often than not farmers are price takers, which results in input costs having to be heavily monitored in order for the business to remain profitable. A good example would be the operation of a feedlot where livestock are purchased, fattened and then sold for human consumption. Feedlots generally have a small profit margin per head or kg of meat produced, which is often compensated by scale. Market movements in relation to the purchase price of livestock and fodder heavily impact feedlots. Any adverse market movements can have a significant impact on the margins achieved. A profit can quickly turn into a loss if input costs are not monitored and managed appropriately.
Jess
Very few organisations have a good understanding of the cost of their products and services. Critically evaluate this statement.
For organizations to understand the cost of their products and services (and hence set prices for customers), they must have a relatively good understanding of the direct material costs (e.g. raw materials), the direct labour costs (e.g. salaries for
References: Anthony, RN, Hawkins, DF & Merchant, KA, 2011, ‘Accounting: text & cases - International Edition’, 13th edn, McGraw-Hill/Irwin, New York, NY Nathan